What is the difference between secured and unsecured debt?
Secured debt is a creditor’s claim that is secured by a lien of some type such as a mortgage or pledge of collateral in your property. A creditor can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any property. Creditors generally extended unsecured loans based solely on an assessment of the debtor’s ability to pay. Examples of unsecured debt include credit cards and payday advances.
• What type or chapter of bankruptcy should I file? • Can I change from one chapter of bankruptcy to another? • Who can file bankruptcy? Do a husband and wife both have to file? • How often can you file? • What do I need to begin the bankruptcy process? • Do you have to have a certain amount of debt to file? • What is a joint petition? • What happens if one spouse files for bankruptcy and not the other? • Does my divorce decree protect me from creditors if my ex files for bankruptcy? • The principal signor on a loan filed bankruptcy, now the creditor is coming after the co-signor. Is this right? • Can all types of debt be discharged? • What can I keep if I file bankruptcy? • Do I have to file bankruptcy on all the accounts I owe or can I keep some? • Will I lose my retirement accounts or payments from social security? • Will I lose my home if I file for bankruptcy? • How long does a bankruptcy stay on my credit report? • Can I do anything to remove a bankruptcy from my credit report? •
A secured debt is a debt which, if you do not pay, the creditor will pick up the property. When you incur the debt, you sign an agreement which states that if you do not pay the debt as called for in the agreement, the creditor may repossess or foreclose on the property. When you purchase an item such as a house, car, television, stereo, etc., this is a transaction which usually is a secured debt. If you do not pay for them, the creditor may demand that they be returned. An unsecured debt is a debt for which there is no property to repossess should you fail to pay the debt. The creditor’s only recourse is to initiate legal proceedings against you in order to collect the debt unless, of course, you are in bankruptcy. Typical unsecured debts include signature loans and credit cards such as MasterCard and Visa, which are actually a line of credit issued to you through a financial institution.
A secured debt is a loan taken out on something that has value, such as a car or home. If the secured debt isn’t paid back, the lender can take back the item for which the loan was procured. Unsecured debt, such as a student loan or credit card debt doesn’t have any secured object to take back. Typically, secured debts have a lower interest rate as there is less risk for the lender involved. As a last resort, the lender can get most of their capital back by taking back the item for which the loan was used.
