Depending on whether you have secured vs unsecured debt, your personal property will be treated differently during bankruptcy proceedings. Additionally, because Chapter 7 and Chapter 13 bankruptcy address repaying debt in different ways, you may or may not lose rights to your property. If you have questions when filing for bankruptcy in Arkansas, consulting with an attorney is usually the best route to avoid missing something important.
Any debt not tied to a particular piece of property or collateral qualifies as unsecured debt. If you fail to pay this debt, your creditors cannot take anything from you except by taking you to court and obtaining a judgment against you. Typical examples of unsecured debt include:
- credit cards
- medical bills
- utility bills
- health club memberships
- lawyer’s fees
- student loans
When there is nothing to back up a loan other than your credit score, creditors can attempt to collect from you by using debt collectors or obtaining a judgment allowing them to garnish your wages or put a lien on your assets.
Any debt that has a physical object tied to it (the “collateral”) qualifies as secured debt. Secured debt can be caused by secured loans made with or without your consent.
Secured debt most often results from taking out a loan to purchase a house, car, or other form of property. This situation makes the loan secured by the value of the property you purchased consentingly. If you fail to pay the loan or default on the loan, your creditor has the right to take the property in lieu of payment.
When you do not offer a piece of property as security for a loan, this is called a nonconsensual lien. For example, if you have defaulted on debt with a mechanic, contractor, or the government, money judgments, property liens, and tax liens created by law can become secured debt you owe to them.
What Your Creditor Can Claim From Your Bankruptcy Filing
How your secured vs unsecured debt is treated in a bankruptcy filing depends largely on whether you file for a Chapter 7 or a Chapter 13 bankruptcy. Chapter 7 bankruptcy requires some of your assets to be liquidated to cover your outstanding debt to your creditors. Chapter 13 bankruptcy stops any current collection efforts, but you have to work with the court on a payment plan to pay back your creditors.
If your creditor wants repayment for your debt through your bankruptcy filing, they must file proof of a secured debt claim or an unsecured debt claim. With secured debt claims, you cannot discharge your debt under a Chapter 7 bankruptcy if you wish to keep your property. If your creditor has a lien on your property that you cannot repay, they can repossess your property. If you do want to keep your property, file a Chapter 13 bankruptcy and repay your debt under the payment plan designated by the court.
Most unsecured claims can usually be fully discharged under a Chapter 7 bankruptcy filing. In a Chapter 13 filing, your unsecured debt will likely be significantly reduced in your payment plan, depending on your income and any assets nonexempt by law.
What You Can Exempt When Filing for Bankruptcy
When filing for bankruptcy in Arkansas, you have a choice of whether you wish to use federal or state exemption statuses to prevent certain assets from being liquidated. If you choose to use Arkansas state exemptions, your clothing and only $200 of your personal property are exempt ($400 if married). However, according to Arkansas Homestead law, if you have a rural home on less than 80 acres, or an urban home on less than 1/4 acre, your home is exempt.
IRA accounts up to $20,000 and all public benefits such as Social Security Disability, unemployment, and workers compensation are also exempt. Federal exemptions do not deal with homestead rules, but actually delineate the value of personal possessions that are exempt. For example, your aggregate value of your personal possessions other than car, jewelry, and tools can be exempt if they total $12,250. You receive an exemption of $3,675 on your motor vehicle, $1,550 for any jewelry, and $2,300 on tools and books you need to do your work.
If you need help filing for bankruptcy in Arkansas, contact Nolan Caddell Reynolds at 866-242-0452.