Every week our office receives multiple phone calls from Georgian families and residents who have fallen on hard times due to the recent economic recession. For these people, sometimes filing for bankruptcy is the best option they have to get themselves above water. Bankruptcy allows families and individuals to wipe out much of their outstanding debt and move forward with a clean financial slate.
Before filing for bankruptcy, it is very important to understand all parts of the process. This post explains a critical portion of bankruptcy, specifically the difference between the two categories of loans that you will need to disclose in your bankruptcy paperwork.
Category 1 – Secured Loans
In general, secured loans are those debts that are “secured” by collateral. If a person does not make the payments on the secured loans then the holder of the loan may take possession of the collateral in order to sell it and recoup as much of the owed payment as possible. Some of the most common examples of secured loans are car loans – which are secured by the car itself, and mortgages – which are secured by the house.
Usually people know if their loans are secured because they signed agreements such as car loan paperwork and mortgages. However, if you are not sure if a specific loan is secured or not, you are urged to contact an attorney who can review your loan paperwork and confirm if it is secured.
Category 2 – Unsecured Loans
Unsurprisingly, on the other hand unsecured loans are those loans that do not have any collateral attached to them. The main difference between the two types is that if a person does not make payments on an unsecured loan, the creditor is not able to repossess any of the person’s property (unless the creditor sues the person and is successful in winning a court judgment). Some of the most common types of unsecured loans include student loans, personal loans, credit card debt, medical bills, and utility bills.
It may surprise many people that unsecured loans can actually create more trouble for a person than secured loans. If you fail to pay an unsecured loan, the creditor can (and many will) report this delinquent debt to credit reporting agencies which damages your credit score. Even after the loan is paid, the person may still need to contact the credit reporting agency in order to get this delinquency removed, which can be a long and difficult process.
Additionally, a creditor can also sue you if you fail to pay an unsecured loan. To do so, the creditor will file a complaint with the court. You will receive notice of the lawsuit and you will get an opportunity to respond to it and challenge the creditor’s claims. However, if the creditor wins and a court judgment is entered against you, the creditor can proceed to collection remedies which can include garnishing your bank accounts and wages, and selling your personal and real property. (It is important to mention that if a person doesn’t pay federal student loans, then the Department of Education can take a portion of the person’s tax refund or garnish up to 15% of the person’s disposable income without even going to court first).
If you are considering filing for bankruptcy and have further questions about secured loans and unsecured loans contact our office today to speak to one of our attorneys. We are happy to schedule a meeting to review your case with you, answer all of your questions, address your concerns, and give you an honest picture of what your bankruptcy case may look like. We look forward to working with you!