Not many people understand the differences between secured and unsecured debt, only knowing they owe too much to ever pay it all back.
“There is one very easy method to determine the differences between secured and unsecured debts, and that is if your creditor can take an item or property away from you, it is secured debt. For example, your home is secured with a loan and the lender can take it back it you don’t repay what you owe. As for unsecured debts, those do not involve property or products. Think medical bills or credit card debts,” said Kevin Ahrenholz, an Iowa bankruptcy lawyer.
What difference does the distinction make? Typically, the differences make a difference when someone is contemplating filing for bankruptcy. If it is a Chapter 7 bankruptcy, they are able to choose between keeping the property or product and paying out the debt. Should the debtor decide he or she cannot pay anything, the product or property may be given back as payment for the debt.
In a Chapter 13 situation, the debtor is allowed to keep the product or property, but they must have a plan to pay off the debt, usually within three to five years.
“In instances like this, it is often the case that the bankruptcy court will only let the creditor charge somewhere around the 10 percent interest rate. No doubt that is a lot lower than what you were paying. Keep in mind, if the value of the item in question is less than the value of the debt, the outstanding amount above that isn’t covered by the item is paid as an unsecured debt without interest,” Ahrenholz said.
“If you are facing bankruptcy, make your first point of contact my office. We have all the information you need, take the time to outline all of your options and will be happy to assist you with your filing, should you hire my services. The first consultation is free and we look forward to talking to you and answering your questions,” Ahrenholz said.
Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact him, visit https://www.iowachapter7.com or call 1.877.888.1766.
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