What Is The Difference Between A Secured Debt and An Unsecured Debt?

Federal and New Jersey laws make a clear distinction between secured debts and unsecured debts, both in terms of the rights of lenders and borrowers’ ability to get the debts discharged.

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The Difference Between Secured Debts and Unsecured Debts

Simply stated, a secured debt is one for which the borrower has pledged a piece of property (collateral) in return for a loan. The most common secured debts are car loans and mortgages. Unsecured debts are those for which the borrower has not pledged property. Examples of unsecured loans are credit card debts, medical bills and personal loans. If the borrower defaults on a secured debt, the creditor can seek to repossess the property that was pledged.

Unsecured debts are treated much differently in bankruptcy court than secured debts. Under Chapter 7 bankruptcy, unsecured debts are completely discharged. Under Chapter 13 bankruptcy, you make monthly payments to reduce your unsecured debts, and at the end of your repayment period, your remaining unsecured debts are completely discharged.

Under both Chapter 7 bankruptcy and Chapter 13 bankruptcy, you can keep property purchased with secured debts, provided that you can keep current on your debt payments and don’t default. However, to do so the lender may require you to sign a reaffirmation agreement.

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Free Consultation With A Lawyer

To learn more about your debt relief options, contact [nap_names id=”FIRM-NAME-3″]. We represent clients throughout Monmouth County, Ocean County and elsewhere in New Jersey.