The difference between unsecured and secured creditors?
Of course you have heard about “unsecured” and “secured” creditors, what is it that differentiates between the two terms? A creditor is somebody to whom money is owed. For example, when you owe the bank money because you have taken out a loan, they are then your creditor.
We can separate creditors into two categories, “secured” and “unsecured”. When there is property that guarantees the loan amount or else you have purchased a couch, ring or house, the loan is considered a “secured” loan.
Most people have purchased, own or are working on paying off their car, this is a great example of a secured loan. Most people have equity in their vehicle and are still working to pay it off. So the creditor has a right to the vehicle when or if the debtor misses any car payments. This process is called “repossession”, when the loan is unfufilled, the creditor can come and take the vehicle. Debts which are considered “unsecured” are credit card bills, medical bills and utility bills. For this kind of debt, not only is their no property securing the debt, the creditor has no right to take any of our other property to satisfy the debt.
Even though “unsecured” creditors are unable to physically take you property, if they file a lawsuit against you because of failure to pay, they will be able to sue you for the amount you owe which could in turn cause the necessity to liquidate some of your assets. (Which means sell them in order to distribute the profits or monies made from the sale). Even if a creditor is able to sue you and receive a judgment on you, there are certain exemption laws which will apply to your property so that you are not left with nothing.
Filing bankruptcy will put a stop to creditor harassment because of the automatic stay that goes into effect immediately after filing. Under the Automatic Stay, creditors are unable to contact debtors in an effort to get any payment because they are under bankruptcy law. They are not even allowed to repossess your car or put your house into foreclosure once you have filed. In fact, these two reasons are sometimes the underlying reason for filing bankruptcy, outside of all the other debts owed. In certain cases, even if your property has already been taken by a creditor, we are able to get it back through bankruptcy. If the property has not yet been sold when you file bankruptcy, they are sometimes required to turn it back over to you. As always, there are exceptions to every rule and with the Automatic Stay there can be. It is important that you consult an attorney to examine the specific details in your case and determine what creditors have the right to or not to do with your personal property.
Stephen Trezza
