What Is an Unsecured Nonpriority Debt In a Bankruptcy Case?


What Is an Unsecured Nonpriority Debt In a Bankruptcy Case?

In the schedules submitted by debtors in bankruptcy cases, debts must be listed categorized by whether the debt is unsecured, secured, or a priority debt, which are defined by federal bankruptcy law. An unsecured debt is an obligation that is not collateralized by a lien on any of the debtor’s assets. In contrast, a loan to buy real property or a motor vehicle is typically collateralized by the purchased property (home, car). If the borrower defaults on the loan, the creditor may take the property to satisfy as much of the debt as possible.

When no collateral exists for a loan or extension of credit, there is, of course, an existing legal obligation to repay them. If a borrower fails to make payments on an unsecured debt, it will not result in the creditor taking any property. An unsecured creditor must bring a lawsuit in civil court and obtain a favorable judgment before it may take any property. Once a creditor receives a judgment, it may garnish wages or a bank account, or attach real or personal property.

Examples of general unsecured debts include:

  • credit card accounts;
  • student loans;
  • utility bills;
  • medical bills;
  • personal loans;
  • past due rent.

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