What Happens to Unsecured Debts in Bankruptcy in Massachusetts?
Bankruptcy can be a daunting process, especially when it comes to understanding what happens to unsecured debts. In Massachusetts, the treatment of these debts during bankruptcy proceedings is crucial for individuals seeking financial relief. This article will clarify the implications for unsecured debts during bankruptcy in Massachusetts.
Understanding Unsecured Debts
Unsecured debts are financial obligations that are not backed by collateral. Common examples include credit card debt, medical bills, and personal loans. Unlike secured debts, such as mortgages or car loans, creditors do not have a claim to specific assets if the borrower defaults.
Types of Bankruptcy in Massachusetts
In Massachusetts, individuals typically file for either Chapter 7 or Chapter 13 bankruptcy. Each type of bankruptcy has different implications for unsecured debts:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows debtors to eliminate most unsecured debts quickly. Upon filing, the court issues an automatic stay, stopping creditors from collection activities. A bankruptcy trustee is appointed to evaluate the debtor’s assets, which may be sold to pay off creditors. However, many personal assets are exempt under Massachusetts law.
Once the process is complete, typically within three to six months, most unsecured debts are discharged, meaning the debtor is no longer legally required to pay them. This offers a fresh financial start for individuals burdened by overwhelming debt.
Chapter 13 Bankruptcy
In contrast, Chapter 13 bankruptcy is a reorganization plan designed for individuals with a steady income. This option allows debtors to create a repayment plan to pay back a portion of their unsecured debts over a three to five-year period. During this time, debtors make monthly payments to a bankruptcy trustee, who then distributes the funds to creditors.
While unsecured debts are not eliminated outright in Chapter 13, the repayment structure may reduce the total amount owed. Also, similar to Chapter 7, borrowers receive protection from collection efforts while under the repayment plan.
Impact on Credit Score
Regardless of the bankruptcy chapter filed, both options will have a significant impact on a debtor's credit score. A bankruptcy filing can remain on credit reports for up to 10 years, but the debt elimination can provide an opportunity for rebuilding credit in the long run.
Conclusion
In Massachusetts, the approach to unsecured debts through bankruptcy varies between Chapter 7 and Chapter 13 options. Understanding these distinctions is essential for individuals considering bankruptcy as a solution to their financial challenges. Consulting with a bankruptcy attorney can provide personalized guidance and ensure a clear understanding of the process.