What is the difference between secured and unsecured debts?
Secured debts are loans that are secured against a tangible asset (eg property, vehicle, white goods (washing machine etc), furniture). If you default the lender has the right to repossess the asset so that it can sell the asset (normally at auction) in order to get back the money it lent you. If it does not get back all of the debt by selling the asset YOU are liable for the difference. An unsecured debt means that the creditor does not have an asset to repossess and sell if necessary and this is reflected in the interest rate you are charged – the risk is higher for the lender and therefore the interest you are charged is higher.
When you borrow money the loan can be secured against an asset that you own such as your home. Thus if you fail to keep up with your repayments the secured creditor can take steps to recover the asset on which the loan is secured. Any finance which is not secured against an asset in your ownership is referred to as unsecured.
An unsecured debt is one that has no collateral associated with it. Examples of unsecured debts are credit cards, lines of credit, signature loans, bounced checks, deficiency balances on repossessed vehicles, and medical bills. Secured debts have collateral. Examples of secured debts include mortgages, home equity lines of credit and car loans. If you have a secured debt like a mortgage or a car loan and then you surrender the home (foreclosure) or the car (repossession) the debt is now unsecured and we can help.
Secured debts are those on which collateral has been pledged to ensure that a creditor gets paid for the loan. Typical collateral includes real estate, motor vehicles, inventories and accounts receivable. But even if originally, a transaction is not secured by collateral, it might become secured once a creditor has filed a notice of claim or lien on certain of the debtors properties. For example, a contractor or subcontractor could secure a lien on a property after successfully obtaining court judgments that he is entitled payments for unpaid work performed for the debtor. Secured creditors could foreclose on the collateral to recoup payment for the debt. Unsecured debts are not tied to any collateral and most are cancelled under a Chapter 7, whether or not they were fully paid. Secured debts remain and secured creditors get paid first from the sale of the assets of a debtor; unsecured creditors are paid with whatever is left. Unsecured debts include loans from friends and relatives, m
Secured debts are debts where a creditor retains a lien on someone’s property to guarantee that the creditor will be paid back by the party granting the lien. If the creditor is not paid back, the creditor might foreclose on the property on which the creditor has a lien. Unsecured debts are debts where the creditor retains no lien on any property guaranteeing a pay back.
