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No Two Debts are Alike: Secured v. Priority Debt in New Jersey Bankruptcy

Often times when filing for bankruptcy, New Jersey residents do not realize that there are different types of debt, and that the bankruptcy court treats them as such. Two different types of debt recognized by the New Jersey bankruptcy court includes secured debt and priority debt. Secured debt in New Jersey often takes the form of a house mortgage or an automobile financing loan, while priority debt refers to those financial obligations that cannot be eliminated by bankruptcy, namely child support payments, spousal support, and some types of taxes.

Secured debt is a lien against property, such as a car or a house. In taking out financing against such property, the debtor is granting the lender an interest in their personal or real property, with that interest eventually expiring once the loan is satisfied. In a chapter 7 bankruptcy, secured debt is discharged only in the sense that the creditor cannot sue a debtor for the amount owed. Typically, however, the creditor can still foreclose on or repossess the debtor’s property in order to satisfy the debt, if the debtor is in default of the loan agreement. In chapter 13 bankruptcy proceedings, a debtor can save their property if their payments are in default to a secured creditor, by paying the total secured debt arrears to the creditor through a monthly trustee payment, while making the future regular monthly payments, directly to the creditor.

On the opposite side of the spectrum, priority debt is, for the most part, entirely unaffected by a chapter 7 filing. This means that the debt continues to be due to the creditor and the creditor may pursue the debtor for the debt, after the bankruptcy case is completed. In a chapter 13 plan, the debtor must pay the priority debt to the creditor through a monthly trustee payment. After the completion of the chapter 13, the priority debt should be satisfied and paid in full.

The experienced bankruptcy attorneys at the Law Offices of Robert Manchel have assisted many individuals, throughout the state of New Jersey, with their bankruptcy filings. We understand that bankruptcy proceedings can be complicated. For more information about bankruptcy, regardless of your situation, please call our skilled NJ bankruptcy lawyers today at 1-866-503-5655.

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