Secured debt vs. Unsecured debt

Secured debt and unsecured debt are very different kinds of debt, whether inside or outside bankruptcy. Examples of secured debts include a mortgage and car lien. Examples of unsecured debts are credit cards and medical bills. The secured creditor has more collection options than the unsecured creditor. A bank holding the title of your car as collateral usually has the right to repossess the car from your driveway when you are delinquent on payments. A mortgage holder may start a foreclosure to sell your house when you miss payments. In both cases you usually end up losing the collateral such as the car or house.  

This is very different from credit card debt, where a creditor usually must file suit for money owed, rather than repossess collateral. Although bankruptcy can discharge both secured and unsecured debts the lien is generally not eliminated by filing bankruptcy. Translation: if you want to keep your house or car- you have to keep paying.

Although we stated earlier that credit card debt is unsecured debt, there is a rare instance when it may be considered secured debt. When a store such as “Best Buy” or “Rooms to Go” issues a credit card or extends credit for you to buy merchandise in store they may take what is called a “Purchase Money Security Interest” in your I-Pad, Refrigerator, or Bedroom Set. Although used items are rarely worth pursuing, the creditors do retain the option.  

Our next post will deal with discharging tax debt in bankruptcy, which is usually unsecured debt, but may be become secured debt in the event of a filed tax lien.