It is important to understand the difference between unsecured and secured debt when you are filing for Chapter 7 or Chapter 13 bankruptcy in Centennial, Littleton, and Aurora. Unsecured and secured debt is treated differently in bankruptcy. It also determines how a creditor can collect, so it is wise to know the difference.
Secured Debt and Lien: Definitions
A secured debt is a loan where the borrower offers some type of collateral or asset (such as a home or car) that can be repossessed if they fail to pay.
- For example, when you buy a car, you usually sign a security agreement that allows the lender to hold your title or take possession of your car if you are unable to make your payment.
A lien is a legal right which is granted to lenders to keep borrowers’ property if a debt is not repaid.
- For example, if you fail to make your car payment, your new car may be taken away and held by a lender until you make your payments.
What is the Difference Between Secured Debt and Unsecured Debt?
One of the biggest differences between unsecured debt and secured debt is the way a lender can collect if you fail to pay your debt. For most unsecured debt, a creditor must sue you in order to take your property. A secured lender, however, can repossess or foreclose on your property. While secured creditors are not able to trespass on private property, they are not usually required to get a court order to repossess a vehicle. If you don’t make your mortgage payment, a lender can enforce a loan by foreclosing on your property. Another option which a secured creditor has is to file a court action to obtain a judgment against you (which means a judge has decided in favor of the lender).
Why You Need an Experienced Centennial and Littleton Bankruptcy Attorney
Usually, both secured and unsecured debt can be discharged in bankruptcy. However, if you want to keep your secured car or home, you need a skilled lawyer to make that happen. Bankruptcy is a confusing process that can be made more difficult by the emotions and trials you are facing when you decide to file. An attorney that has years of experience who understands unsecured and secured debt will help you get the best new start that is possible.