Unsecured Means That There Is No Collateral Securing the Debt, Hence Unsecured
Video Transcribed: Oklahoma Bankruptcy Attorney Edward Kelley here, answering your Oklahoma bankruptcy questions with oklahomacitybankruptcyattorney.pro. This week, we’re doing a series on types of debt. As I said in the overview, we’re going to talk about three main debts: unsecured, secured, and non-dischargeable.
First, let’s talk about unsecured debt today. What is that? Well, unsecured means that there is no collateral securing the debt, hence unsecured. As opposed to a secured loan, which, for example, a car note. If you default on the loan, got to give the car back.
Or mortgage, default on the loan, got to give the property back. That property, whether it’s personal or real is security for the lender that they’re going to get at least some of their loan paid back. So, what are unsecured debts?
Well, number one, credit card, medical bills. Probably 75% of the debt that I see discharged in bankruptcies or paid a portion thereof, in chapter 13s and then ultimately discharged, is unsecured debt. It’s the easy one. It’s the one you want when you’re in a bankruptcy.
It’s really not too difficult a concept. It does get a little strange sometimes on those payday loan places or signature loan places. They’ll have you write down your TV, you’ll just dash off something about… Pledge this as collateral, but honestly, I rarely see them come after those.
And if they don’t, they don’t. However, rent-to-own furniture, things like that generally going to be considered secured.
The whole idea is that they’re able to take the stuff back if you don’t pay. That’s how they make their money, so they will come get it.
Now, if you buy a fridge with your Lowe’s card, that doesn’t make it a secured debt. That credit card is unsecured. They’ve taken the risk by lending to you.
I’ll probably talk more about this in the next one, but what are second mortgages, liens on your house other than purchase liens Sometimes, those can be what’s called “stripped” off of your home or off of the property, rendering them unsecured.
And in a chapter 13, sometimes, you can bifurcate, meaning a big word, just to say “divide” what would originally would be a secured debt into partially unsecured and partially secured.
For example, if your car’s worth $5,000 and if you didn’t buy it in the last couple of years, two and a half years or so, then you can bifurcate that. 10, it’s worth five, $5,000 of that debt is secured, $5,000 is unsecured.
Pay off the $5,000, and you’re good. The other $5,000 can be discharged. If you redeem a car in a chapter seven, meaning you pay it off, same deal. Strip off the unsecured portion and pay it off.
Those are some cases where what would appear to be secured can become unsecured. That’s a little overview. This is in your general chapter seven, come in and liquidate lots of medical bills, lots of credit card debt, personal loans, signature loans.
That’s the unsecured debt that just gets wiped out in a seven and is paid whatever percentage you can afford to only in a chapter 13. Hope that’s helpful. As always, you can reach me at 1-888-DEBT-LINE, or you can email me at Edward@Wirthlawoffice.com, or on Facebook at Oklahomans for Debt Relief.