The Differences Between Secured and Unsecured Debts
People will always spend their money on a lot of different things – it’s human nature to want things to make our lives better. Those include basics, like buying their beautiful dream home on a large property, utilities, clothes and food. They may also include extras, like that attractive new sports car that just looked too good in the showroom window to walk by without purchasing.
Unfortunately, in some cases, expenditures exceed income, and mom and dad say that the Bank of the Parents is no longer providing loans. In those cases, debt management becomes a necessity, making it good to know the difference between secured and unsecured debts.
What are secured debts?
Secured debts are debts that are secured by being tied to an asset that is collateral for the debt. The risk of these debts for the person who owes them is that if he or she doesn’t pay the money he or she owes, the person to whom the money is owned can place a lien on the asset that is tied to the debt. If you fall behind on payments, they get to take the asset.
One type of secured debt is a mortgage loan, which is secured by your home; and another is an auto loan, which is secured by your vehicle. If you fail to make payments in these items, the lender can foreclose on you and take your home or your vehicle. That is why any secured loan should only be obtained in instances that you are completely confident that you will be able to make all future payments so that you will not be at risk of ever losing them.
What are unsecured debts?
Unsecured debts do not have an asset attached to them. If you fail to make payments, the lender cannot take any of your assets unless they sue you. If they do, the court may provide for them a way to obtain your assets or a part of your income, so it is best to contact the lender and work things out which usually involves a payment plan.
There are many examples of unsecured debt, like student loan debts, medical bills; gym memberships, credit cards, a lease, utility bills, and personal loans.
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If you live in Hatford, New Haven or Wethersfield Connecticut and want to learn more about starting fresh and erasing debts with bankruptcy, call our office any time during business hours at 860-563-3955 or by sending us an instant message on our consultation page. We’re here to help you.