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Secured and Unsecured Debt Instruments

Simply put, a secured debt is backed by an asset, such as a vehicle, your home or real estate.  Also known as collateral, if you have a secured loan and default on it, what you designated as collateral can be seized by the lender, and since you used it to guarantee the loan, you will lose it.

With an unsecured debt, the lender does not have rights to any collateral for a debt.  If you default on this type of debt, in most cases, the creditor cannot take any of your property without first suing you and getting a court judgement.  The most widely held unsecured debt is credit card debt. But other unsecured debts may include student loans, payday loans, personal loans, medical bills, utility bills and court-ordered child support.  Most collection remedies and procedures are primarily governed by state law.  Once a creditor has a judgment, they can garnish wages and bank accounts, attach and sell real and personal property, even exam you under oath to obtain financial information.

An issue in collecting a debt can have a large impact on your personal and business relations.  Your attorney should be aware of any promissory notes, pledge agreements, UCC (Universal Commercial Code) filing or lien, and financing statements you have become party to, in order to counsel you wisely on a plan to move forward.

Joshua Irvine