Bankruptcy basics
Creditors in your bankruptcy case
The Bankruptcy Code does not treat every creditor the same. The treatment depends on the kind of claim and the agreement you signed.
Personal liability and security interest
A creditor is anyone who holds a claim against you for money. Two ideas separate one kind of creditor from another.
Personal liability is your promise to pay
It is your legally enforceable obligation to repay a debt. It usually comes from an agreement, and it can come from the law itself, as with income taxes, child support, tickets and fines.
A security interest is a right to your property
It lets a creditor take specific property, the collateral, if you default. Most come from a written agreement, as with a car loan or a mortgage. A lien is a security interest you did not agree to.
No collateral
Unsecured creditors: general and priority
An unsecured creditor has your promise to pay and no security interest. It can take property only by filing a lawsuit, winning a judgment and using the court to enforce it.
General unsecured creditors
Credit cards, medical bills, personal loans, utility bills.
In Chapter 7 or Chapter 13, the discharge ends your personal liability on these debts. After it, the creditor can no longer take you to court over them.
Priority unsecured creditors
The Bankruptcy Code gives certain unsecured debts special treatment. The most common are child support, alimony and certain unpaid income taxes.
Chapter 7 does not discharge them, so you still owe them when the case is over. In Chapter 13 they are paid in full through the plan.
The exceptions
The most common debts Chapter 7 does not discharge
We check your debts against this list before you choose a chapter.
- Child support and alimony.
- Certain income taxes and payroll taxes.
- Criminal fines and restitution.
- Parking tickets and other civil fines.
- Student loans, unless undue hardship is proved in a separate proceeding.
Chapter 13 can discharge some debts that Chapter 7 does not, parking tickets and other civil fines among them.
What the discharge does →Collateral
Secured creditors: the debt and the security interest
A secured creditor has your personal liability on the debt and a security interest in your property. The most common are car lenders and mortgage lenders.
In Chapter 7
The discharge ends your personal liability on the debt. It does not remove the security interest, so the creditor keeps its right to the collateral after the case.
Chapter 7 requires a Statement of Intention: a filed notice of whether you intend to surrender the property or keep it, carried out within a set time. Each choice has consequences, and we make it together.
Understand Chapter 7 →In Chapter 13
If you are current, you keep paying the creditor directly. If you are behind, the past-due amount is caught up through the plan.
You can also surrender the property. Any balance left after the creditor sells it is treated as a general unsecured debt.
Understand Chapter 13 →Liens you did not agree to
A government creditor, such as the IRS, can get a lien under a statute. An ordinary creditor has to sue and win a judgment first. Either one is treated as a secured creditor.
In certain situations a lien from a court judgment can be removed in bankruptcy through your exemptions.
The other bankruptcy basics pages
We go through your creditors together at a consultation
Consumer cases start with a free consultation by phone, Zoom or in person, with a consultation agreement signed first. If you leave a message, please leave only your name and number.
This page is general information, not advice about your case.