Determining What Is Secured Or Unsecured Debt

Determining what is secured or unsecured debt is vital when considering debt management options such as bankruptcy or debt consolidation. For instance, someone trying to avoid filing for bankruptcy may choose debt consolidation. However, they may be disappointed to learn that debt consolidation doesn’t cover both secured and unsecured debt.

Unsecured Debt Is Not Backed By Collateral

When creditors provide unsecured debt, they are basing their decision on various factors such as people credit history, income and their ability to repay the debt. However, when individuals don’t repay their debts creditors options are limited. For instance, they can’t take the property people purchased with the unsecured debt. Creditors only option is to sue and collect the debt through legal judgments and wage garnishments.

When Determining Unsecured Debt Think about Credit Give Freely

Typically, types of unsecured debts include credit cards, medical bills, payday loans and department store charge cards. In other words, remember that they are the types of debts that is given in good faith or with an expectation that the debt will be repaid.

Secured Debt Is Given To People Based On Collateral

If creditors provide individuals with secured debt they are assured they will be repaid. This means if people don’t pay, they must give or return the collateral. In some instances the collateral is being purchased and used to secure property at the same time. Like with unsecured debt, when creditors decide whether to extend credit, they consider income and ability to pay. However, interest rates on the credit may be lower.

When Determine If Credit Is Considered Secured Think of an Exchange

Usually, types of debt considered secured are mortgage loans, loans obtain to lease or buy household items and vehicles. Although a debt consolidation loans doesn’t pay off secured debts, the certain types off debt consolidation loans are considered secured debt. For instance, when people decide to pay off their unsecured debt by taking out a second mortgage or home equity loan, they actually putting their homes up as collateral.

Seek Legal Assistance

People trying to determine which of their debts are considered unsecured and secured debt, should contact an attorney. The attorney can advise people of secured debt which may masquerade as unsecured. For instance, a credit card given to people by their mortgage company may appear to be unsecured. However, if they miss or stop making payments, they may lose their homes because the credit card is attached to their mortgage.

Think Bankruptcy Might Be for You?