What Is an Unsecured Creditor?
If you're considering filing for bankruptcy, you're going to hear the word "creditor" thrown around a lot. Generally, a creditor is anyone to whom you owe money, and this can include banks that hold your mortgage or car loans, credit card companies, and even your landlord if you're behind on the rent.
In a bankruptcy filing, your creditors will be split into three groups, depending on the type of debt -- priority, secured, and unsecured creditors -- and their claims for repayment will be handled differently depending on the type of creditor and type of bankruptcy you're filing. Here's a look at unsecured creditors.
Secured creditors are those that have some collateral to secure repayment of the debt, like a car or real property. Unsecured creditors, like credit card companies, didn't obtain any specified assets as collateral. Priority creditors, who are normally the first to be paid in a bankruptcy proceeding include those who are owed child support payments, back taxes, and similar debts.
While secured creditors may have the option of repossessing collateral as partial payment for a debt, unsecured creditors aren't so lucky and their repayment will generally depend on the type of bankruptcy being filed.
Chapter and Verse
Most Chapter 7 bankruptcy filings are known as "no asset" cases, meaning you would have no disposable income with which to pay unsecured creditors. If, on the other hand, your case appears to be an "asset" case, unsecured creditors must file claims with the court within 90 days after the meeting of creditors and the Chapter 7 trustee will be responsible for liquidating your assets to repay those debts.
Chapter 12 and Chapter 13 bankruptcy filings require you to create a plan to repay all secured creditors and priority debts in full, and must also repay a portion of the amount owed to unsecured creditors. The repayment plan will set aside all of the your projected "disposable income" to plan payments over a period of three to five years, paying unsecured creditors at least as much as they would receive if your assets were liquidated under chapter 7.
Disposable income is defined as your current monthly income minus expenses necessary for the maintenance or support of you and your dependents, or to keep your business open.
Not every bankruptcy is the same. If you have more questions about the filing process, repayments, or long-term effects, contact an experienced bankruptcy attorney today.
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