Tuesday, August 9, 2011

Bankruptcy – Top 10 Reasons To File – #3

Debts you need relief from are primarily unsecured debts. While there are indeed many reasons why people file bankruptcy, I believe you will find a great majority of the bankruptcies filed are for the purpose of discharging unsecured debts, such as credit cards and medical bills. This has been a primary reason for filing bankruptcy sense the beginning of bankruptcies as we know them today, which are a result of our Constitution wherein Congress is allowed to enact “uniform laws on the subject of bankruptcies throughout theUnited States.”

Unsecured debts may also include debts that were, at one time, secured, but now have become unsecured. How can this happen? It could be you no longer have the item. For example, if you purchased furniture with an agreement to start paying in 12 months, but after 10 months of abuse by kids and pets the furniture fell apart, or for some other reason, became totally unusable, usually one would toss it in the trash. The furniture is no longer furniture, but pieces of wood. The loan is still there, but it is now unsecured because the secured interest is no longer there. This loan would be dischargeable as an unsecured loan.

Another example, through a Chapter 13 bankruptcy, could be a second mortgage, and no, the property does not have to fall apart. The way this works is the property has 2 mortgages. The property value has diminished to where the property is worth less than the principle balance of the first mortgage. In this case, there is no property value that can be attributed to the second mortgage, and it becomes unsecured. The means of discharging each of the forgoing examples is very different from the other, but the logic of having an unsecured debt discharged is the same.

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