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Lehighton & Carbon County Bankruptcy Attorney / Blog / Bankruptcy / Secured vs Unsecured Debt: What Is the Difference?

Secured vs Unsecured Debt: What Is the Difference?


Debts are divided into two broad categories; secured and unsecured. The main difference between these debts is that one is backed by collateral, whereas the other is not.

Debtors need to keep in mind that they are bound to experience a lot of pressure and stress when they have overwhelming debts, regardless of whether they are secured or unsecured. Therefore, if you are dealing with uncontrolled debts, whether secured or unsecured, you should consider options that can help you get out of debt. Bankruptcy is one of the choices you can consider. However, before deciding to file for bankruptcy, you need to understand how the above debt types are treated in bankruptcy.

Keep reading to learn about the difference between secured and unsecured debts, and how each type of debt is treated in bankruptcy.

Secured Debt

Collateral, usually an asset, backs a secured debt. When you take a secured loan, a lender places a lien on an asset. Generally, until you finish making loan payments, you are not entirely the owner of the asset tied to a secured loan.

A creditor has the right to seize an asset tied to a secured loan once you default. After the creditor takes the asset, they can sell it to recover their money. If a creditor does not recover the amount in full, they may pursue you for the balance, which is commonly called a deficiency balance.

There are a variety of secured debts, but one familiar example is mortgage debt. When you take a mortgage loan, the lender places a lien on your home. If you fail to make mortgage payments, your home may be seized in a mortgage foreclosure action.  Similarly, a car loan often places a lien on the vehicle’s title and may be repossessed for default in payment.  Some credit card agreements used to purchase personal property applied for at a store place a lien on collateral purchased, such as an engagement ring or furniture.

Unsecured Debt

Unlike secured debts, unsecured debts have no collateral backing.

If you take an unsecured loan and fail to pay, a creditor cannot take anything from you without first obtaining a judgment after successfully suing you in Court.

A creditor who lent you an unsecured loan can try to recover their money when you default by hiring a debt collector, reporting negative information about you to credit bureaus, or filing a lawsuit against you.

Unsecured debts that could land you into such trouble include, but are not limited to;

  • Student loans
  • Credit card debt
  • Support payments like alimony
  • Court-order fines

How Does Bankruptcy Affect These Two Types of Debts?

Unsecured debts are generally easily dischargeable in bankruptcy, except for a few exceptions like court-order fines, student loans, and support payments.

Secured debts, unlike unsecured debts, are tricky. Even though a Chapter 7 bankruptcy can discharge a your personal liability on the debt so that you cannot be sued for a deficiency balance, it cannot prevent a creditor from foreclosing on an asset that the creditor has a valid security agreement on. Therefore, you might not be able to get out of paying off secured debt. However, when most of your other unsecured debts are discharged, then you might be in a better position to pay off secured debts.

Contact Us for Help Today

If debts are currently overwhelming you, bankruptcy is one option you should consider if you want to eliminate the frustration and pressure that comes with overwhelming debt. It can be frightening to think about bankruptcy, but the reality is that bankruptcy has offered many a chance to re-arrange their finances and have a fresh start. If you are currently overwhelmed by debts and would like to learn more about bankruptcy, contact an experienced Lehighton & Carbon County bankruptcy attorney today to schedule a consultation.  Alternatively, if bankruptcy is not an option or something you do not want to consider, the Law Office of Adam R. Weaver, Esq. has extensive experience representing consumers in mortgage foreclosure and credit card collection lawsuits and may be able to help you successfully defend a debt collection action.



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