When you file for bankruptcy, how the court will treat your debts depends on the type of claim the creditor has. In general, the court will classify each of your debts as:
- a secured claim
- an unsecured claim, or
- a priority claim.
What Is a Secured Claim?
If a creditor has a secured claim in bankruptcy, it means that creditor has a lien (also called a security interest) on a piece of property you own. Secured claims can be voluntary or involuntary. If you pledge an asset as collateral when you incur a debt, you voluntarily give the creditor a security interest in your property. But creditors can also obtain liens against your property without your consent through a court judgment or by operation of law.
The most common examples of secured claims in bankruptcy include:
- car loans
- unpaid real property taxes, and
- other types of liens on your property.
For more detailed information on different types of secured claims, see What Is a Secured Debt?
What Happens to Secured Claims in Bankruptcy?
Simply receiving a bankruptcy discharge will not automatically get rid of liens on your property (your discharge will usually only eliminate your personal liability for the debt). If you default on a secured obligation, your lender can still enforce the lien by foreclosing on or repossessing your property after bankruptcy. This means that if you want to keep that asset, you will normally have to continue making payments to the lender until you pay off the debt.
But there are ways to eliminate certain types of liens from your property in bankruptcy. Most commonly, you may be able to get rid of judgment liens that impair your bankruptcy exemptions or wipe out wholly unsecured junior liens from your property. (To learn more, see Avoiding Liens in Chapter 7 Bankruptcy and Getting Rid of Second Mortgages in Chapter 13 Bankruptcy.)
What Is an Unsecured Claim?
If a creditor doesn’t have a lien against your property, it will have an unsecured claim in your bankruptcy case. In general, your bankruptcy discharge will eliminate most types of unsecured claims. But keep in mind that certain unsecured debts (called priority claims) are not dischargeable in bankruptcy (discussed below).
Some of the most common unsecured claims you can discharge in bankruptcy include:
- credit card debt
- medical bills, and
- personal loans.
For a more comprehensive list of unsecured claims, see What Is an Unsecured Debt?
Exception for Student Loans
Student loans are also classified as nonpriority unsecured debts in bankruptcy. But even though they are not priority obligations, you can’t discharge them in bankruptcy unless you can prove to the court that it would be an undue hardship on you to pay them (which is a difficult standard to prove).
To learn more about how student loans are treated in bankruptcy, see Student Loans and Bankruptcy.
What Is a Priority Claim?
Certain unsecured debts are not dischargeable and receive special treatment in bankruptcy. These are called priority claims. Priority creditors get paid before other creditors in bankruptcy and their claims survive your bankruptcy discharge.
The following are some of the most common types of priority claims in bankruptcy:
- child support
- certain tax obligations, and
- debts for personal injury or death caused by drunk driving.
You can’t wipe out priority debts simply by filing for Chapter 7 or Chapter 13 bankruptcy and receiving a discharge. But you can (and must) pay off your priority obligations through your repayment plan in Chapter 13 bankruptcy.
For more information on how priority claims are treated in bankruptcy, see Priority Debts in Chapter 7 Bankruptcy and What Is a Priority Claim in Chapter 13 Bankruptcy?