When you are filing for either Chapter 7 or Chapter 13 bankruptcy, it is crucial to know the difference between a secured debt and an unsecured debt. The characterization of your debt can impact the fate of your personal property.

Secured Debt Defined

A secured debt is an obligation that you owe that is backed by some sort of collateral that the creditor can collect if you default on your payments. Common examples of a secured debt are car loans. If you fail to pay your car loan, the creditor can come and collect your car. An unsecured debt has no property or collateral attached, such as a credit card.

How a Creditor Collects a Secured Debt

A creditor has a different process to follow when it comes to enforcing their rights with a secured debt. With unsecured debt, a creditor must file in court to take your property. A secured creditor can move to take away the collateral if you have not paid or not filed bankruptcy. They can do that in several ways:

  • Repossession: While they cannot trespass on your private property, they can repossess the property when you are out in public. For example, they can repossess your car when you go to the grocery store.
  • Foreclosure: A creditor or lender can foreclose on the mortgage or deed and it may not always require a court order. They also can foreclose liens that are against personal property, depending on the agreement.
  • Court action: Creditors can file in court to obtain a judgment against you to take away your property.