What is Secured Debt?
A San Francisco bankruptcy attorney addresses the question: What is secured debt?
Secured debt is debt which is secured by an asset. For example, your car is secured debt because the value of what you borrowed from the lender is backed up by the collateral.
How is secured debt different than unsecured debt?
Unsecured debt has no asset protecting the loan amount. Credit cards are the most common example of unsecured debt, as there is no collateral involved with the lending. Secured debt and creditors can always take back the asset for which you borrowed money to purchase, whereas unsecured creditors cannot repossess anything.
How is secured debt treated in bankruptcy?
Generally, individuals who own a home or car would like to keep them during the bankruptcy proceeding. Those filing for bankruptcy can keep their secured assets so long as payments to the creditor are still being made. Depending on the chapter of bankruptcy an individual files, the payments are made either directly to the lender or to a bankruptcy trustee who then distributes payments to the lender.
What happens if I cannot make payments on the secured debt?
If you are unable to continue to make payments on a loan secured by an asset the lender can, and usually will, repossess the asset and sell it in order to try and satisfy the outstanding loan balance. If the sale does not generate enough money to cover the loan amount some lenders will try and collect the difference, known as a deficiency. In bankruptcy, you can have a deficiency collection discharged because it is treated as unsecured debt.
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