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Bankruptcy Unsecured Debt

Typical examples of unsecured debt are credit cards, healthcare debt, and, personal loans, not related to real estate, etc. In general, it is not tied to something tangible, such as land or a car, like secured debt, and can be discharged, unlike priority debt. Typically, any debt that is not secured or priority is general unsecured debt. Please review our sections pertaining directly to New Jersey secured debt and New Jersey priority debt for more information about those types of debt as they pertain to NJ bankruptcy proceedings.

All unsecured debt, either in a Chapter 7 or a Chapter 13, must be treated equally. With regard to a Chapter 7, a general bankruptcy discharge will discharge all general unsecured debt. However, certain unsecured debt may be excepted from the general discharge, if a creditor proves fraud in connection with incurring such debt.

With regard to a Chapter 13, typically all unsecured creditors must be treated equally. This means that if the debtor is required to pay a portion of the unsecured debt, the unsecured creditors must be paid pro rata. In the event that one creditor is required to be paid 100%, then all creditors must be paid 100%. However, in a Chapter 13, there may be a situation where there is a special class of unsecured creditors, thereby permitting preferential treatment to a particular unsecured creditor. Under this scenario, one unsecured creditor may be paid 100%, while the other creditors are paid on a pro rata basis.

As I explained in our section about the Chapter 7 bankruptcy process in NJ, the amount to be paid to the general unsecured creditors is based on three separate criteria:

  • Unexempt equity in real estate and/or personal property;
  • disposable income pursuant to the means test;
  • disposable income pursuant to the debtor’s present monthly disposable income based on present net income and necessary and reasonable expenses.

An unsecured Chapter 13 creditor will only be paid if the creditor files with the court a timely and valid proof of claim. This means that even if the creditor is a valid creditor and should typically be entitled to payment, the creditor may not be paid if a timely proof of claim was not filed with the Bankruptcy Court. However, the creditor must have received proper and timely notice of information from the debtor / bankruptcy court. The amount that is due to an unsecured creditor at the filing of the case is the total amount that is due to that creditor. In other words, the unsecured creditor is not entitled to additional interest and costs that may accrue over the life of the bankruptcy plan.

Contact a Bankruptcy Attorney in NJ

If you are considering filing for bankruptcy in New Jersey and have questions or concerns about unsecured debt, you should consult with a bankruptcy lawyer in New Jersey. Robert Manchel of the NJ bankruptcy law firm, The Law Offices of Robert Manchel has dedicated his practice to assiting clients with bankruptcy matters. Call (866) 503-5655 now for a free, confidential, consultation.