If you are struggling with debt or are considering filing for bankruptcy, then you should familiarize yourself with the terms secured and unsecured debt. By understanding these concepts, you can better control your situation and restore yourself to a sound financial standing.
Secured debts are those that are backed by some sort of physical property or product (otherwise known as collateral). For example, a home mortgage is backed by the actual house itself. If you default on the loan, then your creditor will seize your home. Other examples of secured debts include car loans, RV loans, and some high-end electronics loans.
Unsecured debts are not backed by collateral. If you fail to make your payments on an unsecured debt, then there is no item that the creditor can seize for sale and recovery of lost money. Credit card, medical bills, and personal loans are all considered unsecured debts.
Filing for either Chapter 7 or Chapter 13 bankruptcy will affect your debts. A successful Chapter 7 filing should eliminate all of your unsecured debts. Your secured debts will be paid off through the liquidation and sale of non-exempt personal belongings.
A successful Chapter 13 filing, on the other hand, will not eliminate your unsecured debts. They will either be reduced or remain unchanged. Your secured debts must still be paid off in full, but your repayment plan will be restructured. The payment period will be lengthened to anywhere from 3 to 5 years, resulting in a reduction in the amount of your monthly payments.
If you would like to learn more about secured and unsecured debts, or if you are considering filing for bankruptcy, then Birmingham bankruptcy lawyer Paula Greenway can help. Contact her today by calling [phone-number].