Secured vs. Unsecured Debt
If you are thinking about filing for bankruptcy, it is important to examine all of your debts and figure out if they are secured or unsecured debts. It’s important to know this information because each type of debt is treated differently depending on which bankruptcy chapter you file under. Not all debts are removed just because you filed for bankruptcy.
Secured debts are debts that are linked to some type of property that you own securing payment for the creditor by giving them the property if you default . For example, mortgages are secured debts because if you default on the loan, the bank can claim your house. Other examples of secured debts are auto loans, furniture loans, and computer loans.
One type of secured loan is a nonconsensual lien where a 3rd party has legally placed a lien against your property because of nonpayment of your debts to them. For example, if you owed taxes to the IRS, they could put a lien against your property meaning that you could not sell or transfer the property without paying your debt to them first. You could also have a lien put against your property if you hired a contractor to add a room on to your house and then chose not to pay them. They would have the right to legally put a lien against your property.
Unsecured debts are debts such as credit cards and cash advances where there is no collateral if you default on the loan. Student loans, medical bills, lawyer fees, rent and/or utility payments, and health club memberships are a few other examples of loans that are generally unsecured.
Note that if you are required to sign a security agreement when signing up for a new credit card, you should read the terms carefully. Not all credit cards are unsecured, and you could be signing an agreement that your property will be used as collateral, therefore securing the loan.
This entry was posted on Thursday, October 18th, 2007 at 12:30 pm and is filed under Filing Bankruptcy, Bankruptcy Tips.
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