Partial Bankruptcy

Imagine No Debt

We have had clients before ask whether there is such a thing as a “partial bankruptcy” that includes only medical bills or only credit cards while maintaining responsibility for things like a mortgage or car loan. The short answer to this question is, no. There is no such thing as a “partial bankruptcy,” but allow us to explain.
Difference Between Secured and Unsecured Debts

When you file for bankruptcy, all of your debts must be included, but not all debts will be treated the same. You may be able to hold only property like your car and your home, which are called secured debts. The security interest held by the lender on property will not be affected by a bankruptcy filing. This means that you might be able to hold onto the property if you have enough equity built up in the assets.

Unsecured debt is not connected to any property or collateral. Credit cards and lines of credit, certain medical bills, cell phone bills, department store cards, and similar debts cannot cause a lien against your property or require you to return property to pay the debt. For example, a cell phone company cannot ask you to return your cell phone as recourse for your unpaid phone bill. Unsecured creditors can cause great stress by hassling you for payment through a collection agency, phone calls, letters, or reporting your late payments to credit agencies, but they really have no other legal ability to take your things away from you as payment.

In a typical bankruptcy filing, most or all unsecured debt will be cancelled to allow you a fresh financial start. You do not have the option to choose which unsecured debts you pay and which ones get discharged; only the court can make decisions about which debts require repayment.
Option to Reaffirm Certain Debts

If you wish to keep the collateral from secured debts (like your home or car), you may have the option to “reaffirm” those debts with your creditor. You could sign a reaffirmation agreement with a creditor to keep the debt from being discharged in your bankruptcy. Before you decide to do this, however, it is extremely important that you discuss all of your options with an experienced bankruptcy attorney.
Different Types of Bankruptcy

If you choose to file a Chapter 13 bankruptcy, it may be easier to hold onto your assets or collateral while you work through a repayment play issued by the court. If you can keep up with your payments over the course of 3-5 years, the bankruptcy court will probably discharge any remaining eligible debts.

A Chapter 7 bankruptcy is a little different. The bankruptcy court will establish something called a “bankruptcy estate” from your nonexempt assets. Eligible debts will be discharged and you will no longer owe money on those eligible debts, but your creditors will receive partial payment from the proceeds of your bankruptcy estate.

As you can probably gather from the information here, bankruptcy law is much more complicated than just filling out some paperwork—especially when you want to make sure you are making the best possible decisions for you and your family! It is always going to be in your best interests to consult with an experienced bankruptcy attorney before making any moves on your own.

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