Law Office of Judith A. Descalso Law Office of Judith A. Descalso

Knowing the difference between unsecured and secured debt

Not all bankruptcy filings are complex. Many filings under Chapter 7 of the bankruptcy code can actually be fairly straightforward and can be concluded in only a matter of a few months. However, Chapter 11 bankruptcy proceedings can be a different story, as a company that files for this type of bankruptcy protection is probably looking for a way to turn the finances around and stay in business.

One of the basic questions that business owners need to answer before filing for Chapter 11 bankruptcy is how exactly this type of legal action can help the company. In Chapter 11, the primary issue is usually attempting to get debt relief. In these types of situations, knowing the difference between secured debt and unsecured debt is a key part of the bankruptcy solution.

Secured debt is the type of debt that is taken on in consideration of the value of some piece of collateral. For example, consider a routine car loan: the borrower takes out a loan to buy the car, and if the borrower defaults the lender can seize the car. That is secured debt in a nutshell. Businesses of all sizes commonly use their assets as collateral to take out loans. Unsecured debt is just the opposite. This type of debt is a loan that is given on almost nothing more than the borrower's word that the debt will be repaid. In a bankruptcy action, unsecured debt can very often be discharged.

These types of legal terms can be confusing for the owners of a business entity considering bankruptcy. At our law firm, we attempt to make sure that all of our clients get the answers they need to make the right decision. To get more information about secured and unsecured debt, please visit our website.

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