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Castle Law Office

Q
What's the Difference Between Secured and Unsecured Debt?

A

Bankruptcy attorneys often refer to "secured" and "unsecured" debt, but not everyone knows what that means.

Secured debt is backed by some form of collateral, so the lender can recoup its losses if the debtor refuses to pay. Two common forms of secured debt are car loans and home mortgages. In these examples, the car would be repossessed and the home would be foreclosed upon if payments aren't made.

Interest rates on these types of loans are usually lower, because the risk is lower for the lender.

Credit cards and other loans not tied to any collateral make up unsecured debt. Because companies rely on late fees and interest payments to discourage defaults, they are taking on more risk and can charge higher interest rates. In addition to credit cards, other examples of unsecured debts might be medical bills or health club memberships.

About 10 percent of your credit score is based on the types of debt you carry and whether or not you have a “healthy” mix of credit types.

Unfortunately for many people struggling these days, one of the most common debts can't usually be dealt with through bankruptcy: Student loans are considered unsecured, non-dischargeable debt.

There are many exemptions and lesser-known rules to bankruptcy law that might work to your advantage, no matter what kind of debt you're struggling with. We can help you figure out all of your options, so contact us today at 816-842-6200 to talk with an attorney for free. Or you can email us to schedule your free appointment.

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