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Bankruptcy topics: Is your debt secured or unsecured?

Your financial situation may have reached a level where you can no longer keep your head above water. You began looking for debt relief alternatives, and you believe that bankruptcy may be a viable option for you. When you explore the possibility further, you begin to see discussions about how the process handles your debt depending on whether it's secured or unsecured.

Understanding the difference in your debts could affect what chapter of bankruptcy you file. The information below discusses the differences between the two types of debt.

Secured debt

When a lender allows you to borrow money in exchange for placing a lien on a piece of property, this means you took on a secured debt. Car loans (secured by your vehicle) and mortgage loans (secured by your home) comprise the most popular examples of these debts.

If you can't repay the loan or get behind in your payments, the lender may take possession of the property, also called collateral, for the loan.

Unsecured debts

When you borrow money with no collateral (such as credit cards), the debt is considered unsecured. If you don't make the payments, the account may end up with a debt collector who may call, email or otherwise communicate with you relentlessly to get you to pay the amount you owe. In some cases, the creditor may receive a judgment against you from the court for the amount it says you owe.

With that judgment, the lender or debt collector can proceed with collection activities such as garnishments on your accounts or income. They may also report the delinquent or unpaid debt to the credit bureaus, which affects your credit score making it more difficult for you to obtain credit elsewhere.

Dealing with secured and unsecured debts in bankruptcy

More than likely, you instinctively knew that making your mortgage or car payment was more important than paying your credit card bills when money got tight. You may want to try to keep your home and your vehicles despite filing for bankruptcy. These types of decisions could affect whether you file for Chapter 7 or Chapter 13 bankruptcy.

One of the first questions you may ask an Ohio bankruptcy attorney during your consultation involves determining the nature of your debts. You may need to know what options you have to keep secured debt and receive a discharge for unsecured debt. You could receive answers to these questions and more by discussing your financial situation with an attorney.

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