Secure Debt vs. Unsecured Debt

Knowing the difference between Secure Debt vs. Unsecured Debt is critical when you need to get out-of-debt. Secure Debt is debt which has collateral pledged against the debt. For example, when you take out a mortgage on your home, you are using your home as collateral for the debt. In the event you are unable to repay the debt, the lender has the right to foreclose and take your home. Car loans are another example of secured debt. The easiest way to remember what is Secured Debt, is to realize that an asset is securing that debt. You can lose the asset if you don’t pay the debt.

Conversely, Unsecured Debt has nothing pledged against the debt. These types of debts are credit card debt, personal loans, student loans, etc. When you use your credit card, the lender cannot take your car or your home to satisfy the debt. When you are unable to pay the unsecured debt, the creditor will call you; send you letters; threaten wage garnishments and lawsuits. The only way the lender can garnish your wages is if they won a court judgement against you. They must sue you first. Here are the debts that can be discharged in bankruptcy:

  •  Credit cards or unsecured loans.
  • Car repossessions and deficiency balances.
  • Some car accidents.
  • Material supplier debts.
  • Medical bills.
  • Lawsuits and judgments.
  • Evictions and unpaid rent.
  • Unpaid utility bills.
  • Foreclosure balances.

Student loan debt is cannot be  discharged in bankruptcy.


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