When it comes to debt, there are two different types, secured and unsecured. While secured debt is essentially a credit line backed by a tangible asset, an unsecured one is not backed by any contingencies. Even though they differ in this respect, they both can adversely impact an individual's credit score, resulting in collection calls, a loss of assets, wage garnishment and ultimately choosing to file for bankruptcy.
To understand more about how secured debt works, it allows a lender to take back ownership of the loan if the borrower fails to make payments. Among the more common examples of secured debts, there are mortgages on houses and car or title loans for automobiles. In the event of a foreclosure or repossession, a lender might pursue the difference between how much the item sold for and how much was owed.
Unsecured debts, in contrast, are those that are not backed by a tangible asset that can be taken back or sold by the lender to recover a portion of your outstanding debt. Some of the more common expenses that are classified as such include credit card debt, student loans, medical bills and payday loans.
Although it would seem that lenders would have little recourse to stake legal claim to any of your personal assets in a case of unsecured debt, this is not the case. No matter which type of debt one is dealing with, lenders will hire a collection agency to harass you into paying your outstanding balance and, if unsuccessful, potentially petition a judge to take further action.
Even though it is considered to be a less common approach to handling unsecured debt, in either case, a creditor's attorneys can ask a judge to render a number of different judgments with respect to debt in collections. They may ask that your wages be garnished, that one of your assets be taken, or that a lien be placed against one of them until all your debts are paid off.
If you or someone you know if struggling to make payments toward either secured or unsecured debts, a Knoxville, Tennessee bankruptcy attorney can provide essential insight.
Source: TheBalance.com, "The difference between secured and unsecured debts," LaToya Irby, accessed March 21, 2017