What are the Differences Between “Secured” and “Unsecured” Debts?

When considering filing for bankruptcy, debtors will often hear the terms “secured debts” and “unsecured debts”, however, many people are not sure what these terms mean.  Secured and unsecured debts are very different, especially when it comes to filing for bankruptcy.

A secured debt is a type of debt where the debtor uses an asset as collateral for the loan they are taking out on certain property, or the money they are receiving from a creditor.  If the debtor does not make a payment on the loan, the loan provider can take back the property that was placed as collateral.  The creditor would then attempt to sell that property to recover any losses they may have incurred by providing a debtor the loan.  Examples of common secured debts include car loans and mortgages.  When you take out a car loan, the loan is secured by your car, meaning if you do not pay the monthly amounts owed, the loan company will repossess, or take back, the car.  The same thing applies to mortgages: your mortgage is secured by your house; if you do not make your mortgage payments, the provider of your mortgage will foreclose on your house.

An unsecured debt is a type of debt that is not “secured” by any property that you may own.  Common examples of unsecured debts are credit cards, payday loans and medical bills.  Unlike secured debts, if you do not make a payment on an unsecured debt, like your credit card, there is not any property that can be taken as collateral. However, because there is no security for creditors who provide unsecured loans to take collateral to recover any losses, unsecured creditors have the ability to pursue judgments against debtors.  Once a judgment is given in favor of the creditor, they can begin garnishing wages, or even place liens on property if you own a home.

The biggest difference between secured and unsecured creditors in regard to bankruptcy, then, is which type of debt is discharged, or wiped out.  Generally speaking, any unsecured debts that a debtor has will be discharged through bankruptcy, apart from student loans.  However, if a debtor has secured debt, it may not be discharged through bankruptcy.  If a debtor has property such as a car or house, he or she must continue to make payments on the loan if they intend on keeping the property.  If the debtor does not want to keep the property, they can surrender the property through the bankruptcy, allowing them to no longer be responsible for the loan.

If you have questions about the type of debt you have, please contact a St. Louis Bankruptcy attorney today!

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