How to Distinguish Secured from Unsecured Debts

Here are things that will help differentiate a secured from an unsecured form of debt:

The presence or absence of collateral.

As their names imply, secured credit accounts will always come with guarantees for repayment. What does this mean? Well, you need to pledge something valuable against your credit program that will help convince lenders to approve your request for funds. To do this, you may decide to offer your home, a parcel of land, your car and other valuable assets as collateral for you loan. In case of payment default, your creditor can seize or repossess the security you have provided and sell it in public auctions to recover the funds it has extended for credit.

Meanwhile, unsecured forms of debt do not come with security or collateral requirements. To qualify for them, you need to meet the requirements of your prospective lenders, first. For instance, you must prove that you have excellent credit standing and that you can really afford to pay back the funds you wish to take out, based on your current income.

The features of the credit account.

Unsecured loans and credit cards, in general, carry much higher rates of interest and fees than their secured counterparts. Some may also come with more stringent application requirements and procedures – features that will surely discourage the average consumer from filing for them.

Still, it is worth noting that these lines of credit also have beneficial features. For example, unsecured credit cards tend to carry higher spending limits and caps than most traditional card programs available in the market.

On the other hand, secured credit programs usually possess features that will suit the needs, preferences and budgets of most consumers these days. That’s because they tend to carry affordable rates of interest, flexible payment terms and options, and even huge loanable amounts. No wonder more and more consumers nowadays prefer to get secured credit cards and loans over unsecured credit programs.

Now, why is it important for consumers, like you, to differentiate secured from unsecured forms of debt?

Well, the type of debts you possess can actually serve as your guide when deciding which type of bankruptcy to apply for. Bear in mind that filing for the right type of bankruptcy will help ensure the immediate approval and processing of your request to discharge your outstanding financial obligation.

For those who have secured forms of debt, you may be required by the bankruptcy court to surrender your assets to your creditors as payment for your financial obligations. Such step is actually in line with the provisions of a Chapter 7 Bankruptcy.

Meanwhile, for those who have taken out unsecured loans and who have incurred debts on unsecured credit cards, you may be advised to file for Chapter13 Bankruptcy. Under this type of bankruptcy, you will be required to talk to your creditors so that you can come up with a more suitable payment arrangement. Hence, you can keep all your properties, provided that you can really afford to settle your financial obligations, once you’re given a lower rate of interest or a flexible payment method.

Yes, being able to distinguish secured from unsecured credit accounts is very important, especially if you have plans to file for bankruptcy. So, keep the things presented in this article in mind and we guarantee that you can succeed, not just in identifying which forms of debt you actually possess, but also in selecting which form of bankruptcy you should apply for.