A Chapter 7 Bankruptcy allows you to completely eliminate certain debt and either “surrender”, "redeem" or “reaffirm” other debt. Debt is categorized as Secured, Unsecured Priority. Secured debt is something that is tangible like a car or home that can be repossessed or foreclosed on and the lender can physically take it back if you fail to make your payments. Examples of “unsecured debt” are credit cards and personal loans where if you fail to make your payments the lender’s only recourse is usually limited to filling a lawsuit and obtaining a judgment in order to collect on the debt. Common “Unsecured Priority” debt is usually tied to student loans or taxes that, by law are given special treatment and quite often not dischargeable in a bankruptcy.
In Chapter 7 Bankruptcy your debt is categorized into one of the three areas described above. Your unsecured debt is eliminated in its entirety. Your secured debt is either surrendered (i.e. given back to the creditor) or “reaffirmed”, which means that you can keep the property under the same terms and conditions as you had when you purchased the item, or in some instances creditors will negotiate a settlement with you. Unsecured Priority debt can be either dischargeable or non-dischargeable depending on the nature of the debt and when the debt was incurred. For instance, under certain circumstances tax obligations over three years old can be eliminated, whereas student loans cannot.