Now, in plain English .... let's take a car loan for example. When you purchase a car and take out a loan from a bank to pay for it, the bank will secure the loan with the car. What this means is that if you fall behind on your payments, the Bank has the right to repossess your car. Once the car is repossessed they will most likely try and sell the car and apply whatever money they get towards the outstanding loan balance. The Bank may also add any additional fees that they had to pay in repossessing the car, such as attorney fees, etc. More often than not the money they obtain from the sale of the car will not cover the entire balance left on the loan so they then will come after you for any balance still owed! So, in the end you've lost the car and still owe money!
An unsecured loan or debt would be something like a credit card, personal loan or student loan. With this type of loan the creditor does not have the right to repossess the item you purchased, but instead would likely use the courts to obtain any monies owed from you. Again, let's take an example. Let's say I purchased a couch on a credit card. If and when I fall behind on my monthly payments to the credit card company they have the right to file a Warrant-in-Debt against me personally. Here in Virginia the Warrant-in-Debt is how the creditor asks the courts to verify that you owe the money. Assuming that you are found to owe the money, then ten (10) days after the court hearing they then can obtain a garnishment and take up to 25% of your paycheck to be applied toward the monies owed.
[A warrrant in debt is a summons to a defendant to appear in court because they are being sued for a debt. For example, in Virginia’s General District Court, the most common means to initiate a claim is the Summons for Warrant in Debt. However, the warrant in debt provides only limited information and therefore is a notice-based pleading. Along with the bill of particulars, the warrant in debt makes the pleading fact-based. A warrant in debt is the initial filing to start a garnnishment proceeding in some jurisdictions.]
Several examples of Secured and Unsecured debts are as follow:
Secured: Home mortgage, car loan and high value items such as stereos, computers, air conditioners, etc.
Unsecured: Credit cards, medical bills, student loans, etc.
If you are considering bankruptcy, then understanding what type of debt you have is important. Depending on whether you file a Chapter 7 or Chapter 13 Petition will provide you various options in dealing with your debt. For example, in a Chapter 13 Bankruptcy Petition if you are behind in your car payments you may bring your payments current and keep your car.
Next time we'll talk some about property - what types there are and how it is handled in a Bankruptcy. If you'd like to come in for a FREE CONSULTATION, please, give me a call!
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Be safe, be blessed and be proactive!
