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Do I have secured or unsecured debt?

It can be an advantage for a Floridian facing financial challenges, whether as an individual or a business owner, to be knowledgeable about the character of his or her debt, and in particular, whether the debts are secured debts or unsecured debts. Secured debts and unsecured debts will often receive different treatment in a bankruptcy proceeding.

Unsecured debt commonly arises in the form of credit card debt or student loans. For an unsecured debt, a person or entity loaned the debtor money, but the lender does not have a lien on any of the debtor's assets. This is significant, because it means that the lender is not able to repossess the debtor's assets if the debtor does not pay, unless the lender sues the debtor and obtains a lien against the debtor's assets or income.

Secured debt, as the name suggests, is secured by an asset. A home mortgage is a form of secured debt because it is secured by the home. A debtor who does not pay his or her mortgage may find him or herself in a situation in which a lender takes a lien against the home, begins foreclosure proceedings and ultimately takes the home.

Creditors with secured debts are in a better position to have their debts paid than those creditors with unsecured debts. In a bankruptcy proceeding, it is more likely that a creditor with unsecured debts will not receive payment and this debt will be eliminated. In contrast, a secured creditor may be able to obtain the asset, such the car or home, in payment for a secured debt.

A person facing financial challenges, whether he or she has unsecured debt, secured debt, or, as is likely, both, should consider seeking guidance from legal counsel to determine how best to proceed in light of his or her financial difficulties.

Source: foxbusiness.com, "What is unsecured debt?," August 1, 2011

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