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Secured vs. Unsecured Debt: What’s the Difference?

When it comes to debt, not all debt is the same. From the mortgage on your home, to the child support debt you owe your ex, to the money you own on your credit cards, to the loan you have on your living room set – debt comes in different varieties.

It doesn’t matter if you owe $10,000 to the local hospital, $2,000 for an ambulance ride you took, $30,000 in credit card debt, or $5,000 you owe to your mother-in-law for helping you out with the household bills when you were unemployed, debt robs you of your freedom and your future. Here’s what you need to know about the different types of debt and which ones can and cannot be discharged in bankruptcy!

Defining the Word ‘Debt’

If you owe anyone money, count it as “debt.” Whether it’s $20 to your friend for lunch or $100,000 on your mortgage, it’s debt if you owe money to someone or a bank or another financial institution. When you have any debt, it means you’re not just working to provide for your family and enhance their quality of life, but you’re working for the people and banks you owe money to as well.

Let’s take a look at the difference between secured and unsecured debt:

Secured Debt: You head to the car dealership, select a car, and sign the loan papers. You bring home the brand new car and show it off to your neighbors and take your friends for a test drive. Except, you didn’t just “buy” a new car. Technically, you financed it because it belongs to the bank until you pay the loan off in full. This is a secured debt because it’s backed by collateral, something physical that the bank can take away from you if you default on your loan payments. A house is a secured debt too because it can be foreclosed upon if the homeowner skips payments.

Unsecured Debt: Unlike secured debt, unsecured debt does not involve any collateral; nothing can be taken away from the debtor. Examples of unsecured debt include credit card debt, medical bills, personal loans, past-due utility bills, and student loans.

In bankruptcy, many kinds of debts can be discharged, however, not all debts are dischargeable. Generally, the following debts cannot be discharged in a bankruptcy:

  • Recent taxes (older taxes may be dischargeable)
  • Child support
  • Alimony (spousal support)
  • Court-ordered fines
  • Court-ordered victim restitution

We hope this article helped you better understand the differences between secured and unsecured debt. To explore your bankruptcy options and to learn more about discharging debt through Chapter 7 or Chapter 13 bankruptcy, contact Dethlefs Pykosh & Murphy.

Next: Will Chapter 7 Wipe Out All of My Debt?