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Secured vs. Unsecured Debt

Debts fall into one of two categories, secured debts and unsecured debts.

A secured debt is a debt backed by collateral.  Collateral is property the creditor is entitled to take if payments on the debt are missed.  Usually, the debtor agrees to use his or her property to guarantee the loan in exchange for the creditor agreeing to extend the loan.

Secured debts include:

  • Home mortgages
  • Second mortgages
  • Car loans
  • Judgment liens ( in which someone obtains a court judgment against you for failing to pay a debt)
  • Tax liens ( in which the town, state, or federal government has a lien on your property because of failure to pay taxes

An unsecured debt is a debt where the creditor is not allowed to seize your assets if you miss payments.

Unsecured debts include:

  • Most credit card debt
  • Doctors’ bills
  • Legal bills
  • Utility bills
  • Various bills for other miscellaneous purchases