Which Is Better? Secured Or Unsecured Debt?

There are two main types of debt: secured and unsecured

. You have a secured debt if a creditor can take away your property or an object when you can't pay. If the creditor can't take any of your property when you default then you have an unsecured loan. This article weighs each type of debt against the other.

Secured debts are linked to some type of property that you own. This secures payment for the creditor by giving them the property if you default. Mortgages, furniture loans, household appliance loans and car loans are secured debts because they can be repossessed when you cannot pay. Another type of secured loan is a non-consensual lien where a 3rd party has legally placed a lien against your property because of nonpayment of your debts to them. An example, if you owed taxes to the IRS, they could put a lien against your property that prevents you from selling or transferring the property without paying your debt to them first.

Unsecured debts are usually credit cards debts, overdrafts, student loans, medical bills, lawyer fees and debts for other types of services where there is no collateral. These loans are called unsecured because there is no specific thing to claim if you default on the loan. By the way there are secured credit cards, secured by some property or object therefore make sure to read the fine print carefully when signing an agreement for a credit card.

The type of debt you have matters when for whatever reason you can no longer make your payments and you have to file for bankruptcy. Each type of debt is treated differently depending on which bankruptcy chapter you file under.

If you file under chapter 7 bankruptcy most unsecured debts can be canceled while secured items may have to be sold before you are eligible for bankruptcy. You also have the choice of keeping the item and pay off your debt in some other way.On the other hand, under Chapter 13 bankruptcy, if you decide to keep the item or property, you will be allowed to pay off your debt according to the Chapter 13 plan which is usually set to 10%. If the item is sold under chapter 13 and the value is less than the value of the debt then the difference will be paid as an unsecured debt without interest.

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by: Titus Hardin

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