Debts may be secured or unsecured. A debtor (you) may reaffirm a debt if it is in his or her best interest to do so.
A secured debt is a debt upon which a lien or other evidence of collateral is attached to the property. The creditor is entitled to the amount of the lien, and if the value of the property is less than or equal to the amount of the lien, the creditor may take possession of the property. If the value of the property is more than the lien on the property, the excess may be paid to the creditor for interest, fees or other charges provided for under the agreement between the creditor and debtor. If all of the creditor’s fees have been paid, the trustee is entitled to fees and costs for preserving or disposing of the property.
If the debtor is an individual Chapter 7 or 13 debtor, the value of secured personal property is determined by replacement value as of the date of filing the petition without considering the costs of sale or marketing. For property acquired for personal, family, or household purposes, replacement value means the price a retail merchant would charge for the property considering its age and condition.
For example, a debtor purchased furniture on credit for $3,000 and the furniture secured the debt. At the time of bankruptcy, the debtor still owed $2,000 on the contract, but the replacement value of the furniture was only worth $1,500. The debtor may allow the creditor to repossess the furniture or pay the creditor $1,500 to keep the furniture (the replacement value of the furniture). The remaining $500 on the contract becomes an unsecured debt and is dischargeable in the bankruptcy proceedings. If the furniture was worth more than the claim ($2,500), the creditor may take the furniture and apply the excess to his or her costs of managing the claim, including interest on the debt and other fees provided for under the agreement. The debtor and creditor will have different opinions as to the value of secured property. If the dispute cannot be resolved, the court will determine the value of the property upon notice and motion of any party.
If a lien secures a claim that is not an allowed secured claim, the lien is void unless it is an unmatured claim for domestic support obligations, or it is disallowed because the creditor failed to file a proof of claim.
Unsecured debts are debts that are not subject to a lien or encumbrance.
Debts that are non-dischargeable according to federal statute are:
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