Des Moines, IA (Law Firm Newswire) July 15, 2011 – There is often a whole lot of confusion over what the differences are between secured and unsecured debt.
“Bankruptcy proceedings get complicated enough that most people get confused over what the differences are between secured and unsecured debt, or if there are any differences at all. There are definitely differences, and when you speak to an experienced lawyer, this is one of the first conversations you should have,” said Kevin Ahrenholz, an Iowa bankruptcy lawyer.
One of the main problems with people understanding the bankruptcy jargon is that those familiar with it use it like it was a regular language – and it is, to them. To those facing bankruptcy and trying to cope with their financial distress and figure out what the terms mean, it is just one more thing that alienates them. “Most bankruptcy lawyers will take the time to explain the various terms, as it is something that helps put their clients at ease,” Ahrenholz said.
A secured debt is a loan, and in return for the money, the creditor takes a secure interest, also referred to as a security interest, in the item. “For example, if you have a loan for a house or car,” Ahrenholz said. “Having said that though, just about any loan may be secured, so long as the creditor gets a security interest in whatever the item happens to be.”
The thing people need to remember about secured debts is that the remedy for default is typically seizing the asset, either by foreclosure or repossession. In addition, if a creditor does go that route, they may also be able to recover any financial short fall after the repo or possession. “Since you can’t discharge this, an experienced Iowa bankruptcy lawyer is better able to negotiate with creditors, than you trying to do it on your own,” he said.
Unsecured debt is the result of a contract between a buyer and a creditor, but it is not tied to a security agreement, and does not give the creditor the same options to collect on default of payment that a secured creditor has. “In other words, the debtor is saying they promise to pay it back. Examples of unsecured debt are personal loans, medical bills and credit card debt,” Ahrenholz said. Unsecured debt is discharged in a bankruptcy.
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