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What is the difference between secured debt and unsecured debt?

It is only natural for Escondido residents who are contemplating a bankruptcy filing to have quite a few questions about the process. After all, it is common knowledge that filing for bankruptcy is one of the most significant financial moves an individual or business will make, so it makes sense that every question should be answered before the filing proceeds. One of the most common questions is, "What is the difference between secured debt and unsecured debt?"

Debt, whether it is a business debt or a personal debt, falls into one of two categories: secured or unsecured. Whether they know it or not, most people deal with both types every day. First, secured debt is a debt that has collateral tied to it. For instance, a car loan or a mortgage on a home is a secured debt. Put simply, if the secured debt is not repaid in the manner described in the terms of the loan, the lender has the right to seize the property tied to the loan. This right will exist until the loan is repaid in full.

Next, unsecured debt is just as common as secured debt. The big sources of unsecured debt in America? Credit card debt and student loan debt. The term "unsecured" means that there is no collateral that the lender can seize in the event that the debtor becomes delinquent or defaults on the repayment of the loan. However, that does not mean that a creditor will simply give up in that type of situation. They can pursue a judgment in court, which can then be used to secure a lien against any property the debtor owns, or can even be used to get a garnishment on the debtor's income.

For all of these reasons, many people see the benefit of filing for bankruptcy. When a bankruptcy action is filed creditors are prohibited from harassing the delinquent borrower. And, in the case of some types of unsecured debt, the amount owed can be either discharged or restructured into a manageable repayment plan.

Source: Federal Trade Commission, "Coping with Debt," Accessed on Nov. 5, 2014

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