The difference between secured and unsecured debt?

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We have a lot of Indianapolis Bankruptcy clients come in for a free consultation and wonder what is the difference between secured and unsecured debt.  The difference between the types of debt can be confusing.  Many times I explain that there are two types of debt:  secured debt and unsecured debt.

First, let’s discuss secured debt.  When you have a secured debt, an item is tied to it and pledged as collateral.  A lien is put on the asset which gives the lender the right to take away the asset if you are behind on making the payments.  An example of when you would have secured debt is a mortgage.  When you have a mortgage it is secured by your house, and the lender puts a lien on the home.  If you become delinquent on the payments or stop paying the monthly payments, then the lender will foreclose on the home.  Another example is if you get a loan to purchase a car.  The car is the item that is tied to the loan and it is pledged as collateral.  If you fall behind on your monthly payments, then the lender can repossess the car.

Unlike secured debt, unsecured debts are not tied to collateral.  This means that the lender does not have the right to any collateral for the debt.  If you fall behind on payments, the lender cannot take any of your assets – at least according to the loan agreement you have made.

With unsecured debts, the lenders still have other actions they can use to get you to pay.  Many times they hire a debt collector to get you to pay.  If that doesn’t work, many times they will sue you and ask the court to garnish your wages, take an asset, or put a lien on your house until you have paid back the debt.  Many times the delinquent status is reported to credit bureaus, making the default show up on your credit report.

There are many unsecured debts.  The most common is credit card debt.  Other unsecured debts include medical bills, student loans, and payday loans.

If you are struggling with your secured debt or unsecured debt, our office can help.  Whether the solution is debt settlement, an Indiana Chapter 7 bankruptcy, or an Indiana Chapter 13 bankruptcy, we can help.  If you live in Indiana, don’t hesitate to give my office a call today to set up a free face-face consultation.

Also, for more information, check out the video below.

-Indianapolis Bankruptcy Attorney John F. Bymaster