Secured Versus Unsecured Debt

Let a Schaumburg Bankruptcy Attorney Explain the Difference

When you are considering or listing your debts in preparation for discussing the possibility of filing for bankruptcy, it is important to understand the difference between secured debt and unsecured debt. If you have questions about what this means in your particular case, talk to a qualified Schaumburg bankruptcy lawyer.

At U.S. Law Attorneys, Ltd. in Schaumburg, Illinois, and Camp Springs, Maryland, our bankruptcy lawyers work with the bankruptcy laws and deal with financial and tax issues every day, but we know that many terms are unfamiliar to our clients. Never hesitate to ask us if you are confused about a term or if you want to make sure your understanding is accurate.

Differences Between Secured and Unsecured Debt

• A secured debt is like the money you owe on your house or car. If you do not pay the lender, the lender has the right to take the “security” — the home, car or other asset that secured the debt.
• Look at “secured” loans this way: Your lender kept some ownership in the asset (car/home/boat/etc.) in order to feel “secure” about your ability to pay the loan.
• The lender may take back a secured asset, but you may also be able to renegotiate the loan and keep the asset.
• Examples of unsecured debt are a credit card, medical bill, cell phone account or student loan. If you do not pay your bill, the creditor cannot take back items you may have bought with the credit card, for example. The creditor can send letters, call you, turn the account over to a collection agency, but the creditor cannot take any property away from you.
• But be careful of certain retail store credit accounts: sometimes items purchased with retailer cards (i.e., furniture, large electronics, jewelry) must be surrendered if you choose to discharge the debt in bankruptcy.
• In bankruptcy, the lender can repossess a car or home that secures a debt.
• In bankruptcy, unsecured debt is usually discharged, allowing you to obtain a fresh start.
• In some cases, assets with equity may be sold off to help pay the unsecured debt, but secured assets (home or car, for example) typically cannot be sold to pay your debts.

Know the Facts — Talk to a Lawyer

Bankruptcy can be complicated. Secured debt is treated differently than unsecured debt. It is important to get all the documentation right and follow the rules. Contact an experienced Schaumburg bankruptcy attorney who can help you understand your rights. The first consultation is free.