When you are in the midst of a
bankruptcy filing, you will likely come across both secured debt and unsecured debt. You
might not, however, come across a clear explanation as to what these two
types of debt are, and why you should care.
What is Secured Debt?
A secured debt is any type of debt that is tied to a lien that would permit creditor
foreclosure if the debtor defaults. Auto loans and mortgages on households represent
the most commonly occurring forms of secured debt in bankruptcy. A court’s
approval might not be necessary for a lender to step in and reclaim your
property through a secured debt, depending on what the fine print said
on the loan paperwork you assumedly signed. Always be mindful whenever
you are accepting responsibility for any type of secured debt.
What is Unsecured Debt?
Oppositely, an unsecured debt is one that cannot be collected without a
court’s approval, no matter how far into debt the debtor sinks.
Another way to think about it would be that unsecured debt is not tied
to any asset or property in particular, and therefore cannot be acted
upon automatically. The most common form of unsecured debt is
credit card debt, followed by private student loans. Rather than removing property for
defaulting, unsecured debt will impact credit scores, making it harder
for the debtor to obtain new loans and increasing interest rates on many
large purchases, which essentially raises to the total cost of those items.
Unsecured is Not Dischargeable
A common mix-up is thinking that unsecured debt means it vanishes when
you file for bankruptcy. This is not necessarily true. Debt that can be
eliminated through bankruptcy is called dischargeable debt; non-dischargeable
will remain after most bankruptcies. Both unsecured and secured debt can
be either dischargeable or non-dischargeable.
Need Help? We’re Here for You
Understanding bankruptcy and debt is the first step to a successful bankruptcy
filing. When you need legal assistance you know you can trust, and who
is willing to work with you step-by-step,
contact Albaugh Law Firm and our Jacksonville bankruptcy attorneys for a