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Secured or Unsecured Debt

There are a few different categories of debt that people normal consumers deal with on a daily basis. In the world of credit and loans, we see many different names for loan products like payday loans, cash advance loans, interest-only mortgage, sub-prime mortgage, hard money loans, casino markers, student loans, and countless others. All of these types of loans can be categorized into two types of debt: Secured or Unsecured debt.

Unsecured debt is the type of debt that is not attached to the value of any asset or tangible object. An unsecured loan is a loan that was granted to you or an entity based upon merit of credit record or some type of note with loan terms that were agreed upon by a lender/creditor and recipient of the loan. Credit card debt is considered an unsecured type of debt. Credit card debt is sometimes called revolving credit because it is automatically revolving into a renewed loan amount after you pay of the credit that was used. You don’t need to re-apply for the credit line to be renewed when it gets paid off. So, it is considered to automatically revolve into a new credit line once paid off. Credit card debt is a common type of unsecured debt. Credit card debt is not attached to an asset or another bank account. It is, by definition, not secured by any asset that you or the borrowing entity owns.

The other side of debt is called secured debt. Secured debt is a type of debt that is attached to an asset. The loan is dependent on the value of the asset at the time of the purchase. The value of the asset is agreed upon and financing is extended based on the amount of money that needs to be paid to match the full value of an asset. So, when you buy a $50,000 automobile, and you put $25,000 down, the left-over $25,000 to be financed becomes a secured loan. The loan is secured based on the value of the automobile at the time of purchase. So, you and the dealer agreed that the car is worth $50,000 and you are paying $25,000 down plus financing $25,000 to pay for the rest of the car. In a secured debt, there are agreements based on the asset that can be placed on the loan. For example, the agreement may state that the loan is secured by the automobile, allowing the automobile to be repossessed if the payments are not made by the terms that were agreed upon on the loan. A home loan is also a secured debt. If the home mortgage is not paid, the home can be repossessed in a foreclosure.

Bankruptcy has facilities to handle both unsecured and secured debts. It may not be possible for you to keep assets from a secured loan by bankrupting out of the debt, but it will clear you of any left-over debt for an asset that you can no longer afford to keep. Unsecured debt is commonly discharged in bankruptcy without repayment as long as you qualify for the bankruptcy.

 

 

Bankruptcy Law Professionals is a bankruptcy law firm based in Southern California.  We have office locations in Riverside and in Santa Ana.  Contact us at 855 257-7671 to schedule an appointment.

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