What is a Secured Debt?
A debt can be “secured” by some type of property. That property is the “collateral.” Houses and cars are typically financed by the house or car for which the loan was taken out to purchase. Loans can also be secured by property other than the property that the loan was used to purchased.
If a debtor does not make payments as agreed, the creditor has a right to foreclose or repossess the collateral. The collateral is sold at an auction and the debtor may be held liable for the difference in the cost the lender was able to recoup and how much the lender loaned plus costs and interest. Collecting on the remainder or the “deficiency” is thej same process as collecting an unsecured debt.
What is an Unsecured Debt?
Creditors may make loans without collateral, but typically at higher interest rates due to the higher nature of the risk of default. Unsecured debts are more difficult to collect. We can file suit against the debtor to secure a judgment.
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