Essentially, when you are approved for a loan, you either take on a secured or an unsecured debt. This may not mean much to you until you struggle to keep up with your monthly dues. Or, until you file a consumer bankruptcy petition. Without the need for further introduction, please continue reading to learn the difference between secured and unsecured debt and how an experienced Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., can help you prepare for what happens to these debts in bankruptcy.
What is the difference between secured and unsecured debt?
On the one hand, secured debt is backed by collateral, which is a way of reducing risk for the lender by ensuring that they get a guaranteed repayment by the borrower. For example, your mortgage loan uses your home as collateral. This means if you default on your mortgage loan, your lender has the right to seize your home, sell it, and use these liquidated funds to recover their losses. The same goes for your auto loan and your vehicle as its collateral.
On the other hand, as you can likely assume by yourself, unsecured debt is any other type of debt that is not associated with specific collateral. And so, if you default on this type of loan, your lender may pursue other methods of collection activities to get the repayment to which they are entitled. Examples of this may include reporting your default to the credit bureaus, initiating a lawsuit against you, and more. Common examples here are medical bills, credit card debt, and student loans.
What happens with secured and unsecured debt in bankruptcy?
You may have heard that bankruptcy is one way of protecting yourself against harsh creditor activities. While this is somewhat true, you may not become completely immune to your financial responsibility towards your secured and unsecured debt. For your secured debt, you may choose between surrendering your collateral, continuing to make payments on the loan to keep the property, or paying the property’s fair market value to keep it.
As far as unsecured debt goes, it may be discharged at your bankruptcy case’s close. However, this is not to say that your unsecured creditors will not get to recover some of the funds from your other liquidated assets. Also, if you opt for a Chapter 13 bankruptcy case, you may still be on the hook for paying off a portion of this debt during your three- to five-year repayment schedule. Of course, the same applies to your secured debt.
Do not let your legal initiatives stop after reading this blog. The next action you should take is calling us at the Law Offices of Allen A. Kolber, Esq., P.C., and retaining the services of a talented Rockland County bankruptcy attorney. Rest assured, we will take the reins from here on out.
