Filing For Bankruptcy - Understand Secured Vs Unsecured Debt
One of the most popular myths surrounding bankruptcy is that each and every loan that you owe is automatically discharged once the bankruptcy proceeding is approved by the court.
That is not the case.
There are some debts that you will have to repay even though you have filed for bankruptcy.
Surprised? Well, let us understand the difference between secured and unsecured debts and find out how bankruptcy impacts both these types of debt.
As far as unsecured debt is concerned, it is a loan that is offered on the basis of your future income.
If the borrower has absolutely no income or no asset which can be used to recover the amount owed, then the debt remains unpaid and that would be the end of the matter.
Needless to say, this would seem like a very high risk for the lenders.
What if you do not repay the debt? They will have to approach the court for a freeze of your bank account.
What if there is no money in your bank account? Well, the lender will simply have to write off the debt as a loss.
This is the reason why unsecured loans charge very high interest rates.
As far as secured debts are concerned, the money is based on a security.
The best example of a secured loan is the home mortgage loan.
You buy a house worth two hundred thousand dollars.
You offered down payment offer ten to twenty percent and you get a loan ranging from $160000 to $180000.
This amount is offered only when you write a mortgage and pledge the asset in the name of the lender.
If the money is not repaid in full, the lender will have the right to dispose the asset off and recover the amount due.
This is what is called a foreclosure.
If you have a secured loan against your name, even a bankruptcy is not going to free you from your obligation.
If you do not to repay the debt in full, the lender will have the right to claim the asset for which the loan was obtained.
Hence, if you have a lot of unsecured debts and if you do not have any assets, filing for bankruptcy will help you to get discharge from each and every obligation.
If that is not the case, then you had better be prepared to repay some more debts to retain your house.
That is not the case.
There are some debts that you will have to repay even though you have filed for bankruptcy.
Surprised? Well, let us understand the difference between secured and unsecured debts and find out how bankruptcy impacts both these types of debt.
As far as unsecured debt is concerned, it is a loan that is offered on the basis of your future income.
If the borrower has absolutely no income or no asset which can be used to recover the amount owed, then the debt remains unpaid and that would be the end of the matter.
Needless to say, this would seem like a very high risk for the lenders.
What if you do not repay the debt? They will have to approach the court for a freeze of your bank account.
What if there is no money in your bank account? Well, the lender will simply have to write off the debt as a loss.
This is the reason why unsecured loans charge very high interest rates.
As far as secured debts are concerned, the money is based on a security.
The best example of a secured loan is the home mortgage loan.
You buy a house worth two hundred thousand dollars.
You offered down payment offer ten to twenty percent and you get a loan ranging from $160000 to $180000.
This amount is offered only when you write a mortgage and pledge the asset in the name of the lender.
If the money is not repaid in full, the lender will have the right to dispose the asset off and recover the amount due.
This is what is called a foreclosure.
If you have a secured loan against your name, even a bankruptcy is not going to free you from your obligation.
If you do not to repay the debt in full, the lender will have the right to claim the asset for which the loan was obtained.
Hence, if you have a lot of unsecured debts and if you do not have any assets, filing for bankruptcy will help you to get discharge from each and every obligation.
If that is not the case, then you had better be prepared to repay some more debts to retain your house.
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