Secured vs. Unsecured Claims

Loans and other forms of debts can be broadly divided into unsecured debt and secured debt. This blog will discuss the differences between secured and unsecured claims.



Understanding the Terms

In simple words, a secured claim is a debt that is backed by something valuable, such as a house or car, and can be repossessed if the borrower fails to make their monthly payments. Unsecured debt has no collateral backing it. This means that if all you have is a signature from the one you’re giving loan, it’s an unsecured claim. However, under the law, these differences are more complex than this.


Under Bankruptcy Proceedings

There are several differences between secured and unsecured claims under bankruptcy proceedings. A secured claim is backed by collateral, which is property owned by the borrower. A secured creditor has the right to take possession of the borrower's property if they fail to make payments on the debt. Types of debts that are considered secured include mortgages, car payments, taxes, credit cards, and student loans.

For instance, if you have a loan in which they're lining against your car, then that would be considered secured debt because you can lose your car if you don’t pay for the loan. If they only have your signature on a piece of paper without any valuable property backing it up, it would be considered an unsecured claim.

In other words, unsecured credit is not backed by any collateral whatsoever. This type of debt can be very risky for creditors because if a borrower does not pay their bills on time, no property can be taken back to compensate for unpaid money owed. Types of unsecured debts include utility bills, medical expenses, and personal loans. However, that doesn’t mean that the defaulter can get away without facing any legal consequences. The consequences of not paying the debt may depend on the terms and conditions that were agreed upon.


Future Income Consideration

Secured debts can also be backed by a borrower's future income or property. Examples include any property they may have in the future or any other asset they may acquire later. Secured creditors have the right to go after these assets if payments are not made as agreed upon.


McLeskey Law Offices are a good option for Columbus locals, thanks to their experience in probate law and many other legal services. They are helping out their clients with debt, property matters, probate law, much more. They have Creditors Rights attorneys who can also help. Reach out to the business today if you seek a probate law or litigation lawyer.

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