Unsecured debt is a classification of a certain type of debt. Typical examples of unsecured debt are credit cards, healthcare debt, and, personal loans, not related to real estate, etc. In general, the credit is not tied to something tangible, such as land or a car, like secured debt. Unsecured debt is the type of debt that is “dischargeable” which means that the total amount of debt may be discharged (eliminated) if the debtor meets the bankruptcy criteria. Typically, any debt that is not classified as secured or priority, is unsecured debt. Please review our sections pertaining directly to secured debt and priority debt .

A general chapter 7 bankruptcy case discharges all unsecured debt, with limited exceptions.

As I explained in our section about the Chapter 13 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 projected net income and necessary and reasonable expenses.

The above criteria determines the total amount that must be paid to the unsecured creditors, in total. Also all unsecured debt must be treated equally. This means that if one unsecured creditor is entitled to payment of 100% of the debt, than all unsecured creditors are entitled to be paid 100%, as well. Please note that the majority of chapter 13 cases, do not require any disbursements toward the unsecured debt.

In a Chapter 13 case, there may be an unsecured creditor that is entitled to be treated in a special class, thereby permitting preferential treatment. Under this scenario, one unsecured creditor may be paid 100%, while the other creditors are paid on a pro rata basis.

Also, there may be unsecured debt that is not dischargeable, such as student loan debt. Student loan debt is not eliminated in a chapter 7. Also, any portion of the student loan debt that is not paid in a chapter 13 case, will still be due and owed after discharge. There are exceptions to this rule.

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 of the bankruptcy filing. The amount that is due to an unsecured creditor is the total amount that is due to that creditor on the date of the bankruptcy filing. 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 and have questions or concerns about unsecured debt, you should consult with a bankruptcy lawyer in New Jersey. Robert Manchel Esq. Robert Manchel Esq. has dedicated his practice to assisting clients with bankruptcy matters. Call (866) 503-5655 now for a free, confidential, consultation.