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Unsecured vs. Secured Debt


If you are in the process of beginning to file for bankruptcy, there are many phrases that may seem completely foreign to you. One of those is the difference between secured and unsecured debt. Bankruptcy is an opportunity for someone to find financial relief from the distress they feel due to their overwhelming debt. There are certain debts that can be eliminated entirely, which are called dischargeable debts. In other cases, some debts will be reduced, and in other cases, some debts will remain. Ultimately, the determining factor regarding which debts are dischargeable in which ones remain is how those debts are characterized. Whether a debt is considered secured or unsecured is a determining factor in whether or not you will be able to eliminate it in your bankruptcy.

Unsecured Debts

If a debt is unsecured, it means that there is no property that a creditor can take as a replacement for the money that you owe them. Some typical examples of unsecured debts include medical bills, and credit card debt. If a creditor of one of these types of debts attempts to collect compensation from you, they only have a certain number of options. They can contact you in an attempt to get you to pay the bill, or they can take you to court and attempt to garnish your wages or simply have the court require you to pay your debts. However, as this is an unsecured debt there is nothing that they can come and collect as collateral regarding the loan or debt leaving them at a disadvantage.

Secured Debts

Secured debts are different from unsecured debts in that there is collateral attached to the debt. Collateral means that there is some sort of physical property that a creditor can take to replace the debt that you have not paid. Some examples of secured debts include homes or vehicles. For example if a creditor of your vehicle loan attempts to collect compensation from you, and you do not pay them in a timely manner, the creditor has the legal right to come and take the vehicle from you as collateral on the loan. In all cases, creditors would rather have secured that rather than unsecured debt, because it increases their chance that they will actually get repaid for the loan or debt.

Why Unsecured vs. Secured Matters for Bankruptcy

Many unsecured debts are completely discharged within Chapter 7 bankruptcy. However, secured debt typically does not receive a discharge with a bankruptcy, but can be sold in order to repay your creditors.

Contact Us Today for Professional Help

If you have different kinds of debts and are unsure if they will be discharged in a bankruptcy, consider visiting with an experienced West Palm Beach bankruptcy attorney at Kelley Kaplan & Eller at 561-264-6850 today for a consultation. We can examine all of your debts, help you determine which ones would qualify for a discharge, and help you determine which type of bankruptcy to file.




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