The type of debt a person has may influence their decision on the type of bankruptcy they file, especially if it means they will be able to maintain some of their possessions. Looking at the difference between secured and unsecured debt, it can be defined as with secured debt, if the payments are not made the person holding the note and reclaim the merchandise. Take heed and gain respectable debt reduction advice to keep yourself out of heavy debt.



Typically, secured debt involves a home mortgage or a car loan. In many cases of default, the car is repossessed and the house goes through foreclosure. Typically, merchandise taken through a loan default is auctioned and the debtor is liable for any remaining balance plus the cost of recovery and sale. In situations where a debtor is behind in payments and wants to keep their car and their house, a Chapter 13 may offer the relief they need.

The balances will still have to be paid on a plan worked out with the creditor, often the same payment as in the past while past due payments are paid through a plan approved by the bankruptcy court. This allows for breathing room for the debtor to begin putting their financial life back on track.

Unsecured debts, such as most credit cards and store charge cards have no merchandise help as collateral for the loan and if the debtor defaults on the loan, the creditor has nothing they can take back. Their only recourse is through civil court to recover the balance owed. If a person's majority debt is unsecured and there is no car or house in the picture, Chapter 13 bankruptcy can eliminate the debt. With debt reduction advice, you can be sure you won't need to file bankruptcy. At least, not more than once!

Homeowners who file for bankruptcy often find that the trustee will search for any assets belonging to the debtor and when filing a Chapter 13 bankruptcy, the equity in the home will need to be listed. It is not unusual for the equity to be used to pay off all or some of the outstanding debt in a Chapter 13 bankruptcy case but there may be options available in how that is done.

The attorney can petition the court for permission to add debt in a case, where the homeowner can take out a second mortgage, or home equity loan, to pay off the debt through the court. This can be advantageous in a couple of ways to the debtor.

First, during a Chapter 13 plan, the repayment plan is typically for three to five years while a home equity loan can be for a longer period of time. While the debtor is still paying off the debts, it is now in the form of a second mortgage, which can also get them out of bankruptcy much quicker. In some cases, re-mortgaging the home can often realize a lower interest rate, which if spread over the same length of time, will result in lower monthly payments.

When applying for a home equity loan bankruptcy option, it is important to advise the lender of the nature of the loan. They may see it as a way of keeping your financial house in order instead of denying the loan due to the presence of bankruptcy in progress.