Almost all consumer debt can be categorized as either unsecured or secured. Unsecured debt is based on a consumer’s promise to pay, such as with credit cards, medical bills, unpaid taxes, student loans or personal loans. Secured debt is backed by collateral such as a vehicle or home. Most bankruptcies involve unsecured debt.
According to the Federal Reserve, credit card debt is roughly 1 trillion dollars for 2018, making up almost 40% of consumer credit in the United States. Other unsecured debt include child support, alimony, personal and student loans and medical bills.
An unsecured creditor can bring a lawsuit against you for falling behind in your payments. If the suit goes in their favor and they can bring judgment against you, they may be granted the right to attach liens to your personal property or even your home to enforce payment of the loan.
Mortgage loans, secondary mortgage loans, and vehicle loans are secured debt with some type of collateral. The collateral for your mortgage loan is your house, for secondary mortgage loans the collateral is the equity you have in your home. If you fail to keep up with the payments, the lender can foreclose on your home and sell it for the remaining balance of your loan.
When you take out a vehicle loan, the vehicle is the collateral; again, if you don’t make the payments, the lender can repossess your vehicle and sell it. In both cases, if you owe more than what your collateral was sold for, you may still be responsible for any money due on your original loan.
Secured lenders are less likely than unsecured lenders to agree to debt settlements that result in less than the full amount owed. They may agree to a discounted final payment in some cases, but generally, they will seize the collateral and sell it to recover the money due on the loan.
If you are falling behind on your bills and the creditors are calling and sending letters, consider speaking to a Cincinnati bankruptcy lawyer to find out what course of action you can take.