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Posted On September 09, 2020
What Is the Difference Between Secured Debt and Unsecured Debt in a Nevada Bankruptcy?

What Is the Difference Between Secured Debt and Unsecured Debt in a Nevada Bankruptcy?

Secured debt is backed by collateral while an unsecured debt is not connected to the borrower’s assets. Bankruptcy can help people get rid of most of their unsecured debt. However, it will not eliminate their secured debts.

What Is Secured Debt?

Secured debts are loans that are guaranteed by property. Mortgages, for example, are secured debts. When someone purchases a home with a mortgage, that home serves as collateral for the loan. If the borrower becomes delinquent with loan payments, the lender has the right to begin foreclosure proceedings. If the foreclosure is approved by the court, the lender takes the home and sells it, usually at an auction. If the selling price does not satisfy the debt completely, the lender may go after the borrower for the difference.

Sometimes secured debt is involuntary. For example, the debtor owes back taxes and the government, state, or municipality puts a lien on the person’s property.

What Is Considered Unsecured Debt?

Most credit card debt, medical bills, personal loans, and even gym membership contracts are considered unsecured debt because these loans are not backed up with collateral. Instead, the debtor is given credit based on his or her credit history and the promise to repay the money. Other debts that are generally unsecured include alimony, child support, or income taxes.

How Are Secured and Unsecured Debt Treated in a Nevada Bankruptcy?

In a Nevada bankruptcy, secured and unsecured debts are treated differently. With a Chapter 13 bankruptcy, unsecured debt is split into priority and non-priority claims. Debts like child support, alimony, legal fees owed for the bankruptcy filing, or unpaid income taxes are considered priority debts and they will take precedence over non-priority debt like credit card debt or medical bills. Often, non-priority unsecured debts are not repaid in Chapter 13.

In a Chapter 7 bankruptcy, most unsecured debts are discharged. In both types of bankruptcy, debts like student loans, recent income taxes, and domestic support obligations are not discharged, however.

Debtors must declare whether or not they intend to keep the property that was used for collateral for their secured debt.  While there may be a temporary stay on a foreclosure or repossession when bankruptcy is filed, payments for secured debts and the Chapter 13 repayment plan must be made on time.