What is Unsecured Debt and Secured Debt?
There are some major differences between secured debt and unsecured debt. Understanding the legal definitions of secured debt and unsecured debt will help you understand exactly where you stand when it comes to creditors, your responsibilities as a borrower, and the rights of the creditor that is seeking to collect on unpaid bills. Here we will examine the differences between both forms of debt, and how you can get both forms of debt back under your control.
First, let’s explore what a secured debt is. When you have a secured debt, your creditor has provided you with a line of credit or a loan that is associated with a form of collateral. You might use your car or your house as a form of collateral in a secured debt. If you do not pay your debts to the creditor, you may be forced to sell your car or your home to repay the debt, or the creditor may seize your property and sell it to reclaim the funds that you have failed to pay. What’s more, if the equity of your home or the value of your vehicle is less than what you owe, you are then held responsible for the remaining balance of what is owed. This can lead to liens, judgments, and garnished wages in the future.
Now let’s examine what unsecured debt is and how it differs from secured debt. Unsecured debts are formed when you get a loan or a line of credit without using collateral. Often times these loans and lines of credit are based upon your good credit standing. Since there is no collateral associated with an unsecured debt, the debtor has nothing to seize from you if you should default on your payments. This does not mean that you get away without paying your obligations however. You can end up destroying your credit score for failure to pay, and the creditor can have judgments, wage garnishments, and liens placed against you or your property. Unsecured debts include things like approved loans, credit card debts, medical bills, and student loans.
Many consumers dealing with secured and unsecured debt problems think that bankruptcy can save them; this should be a final resort and bankruptcy should not be your first option. Filing for bankruptcy can cause long-term damage to your credit and you could wind up losing your property anyway, depending upon what type of bankruptcy you end up filing for. You have other options available to you that work equally well in terms of debt management. You can opt for a debt consolidation loan to pay off current debt or you can borrow funds from retirement plans, savings, and insurance policies. You can obtain credit counseling services where you get professional assistance in paying off your debts, developing a budget, and dealing with creditors. Alternatively, you can avail yourself of a debt settlement program where you have professionals negotiate with creditors to reduce your overall debt and create a new repayment plan for you. All of the latter options mentioned work equally well in dealing with debts that are both secured and unsecured.
Reviews
No Comments
Leave a reply