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How creditors collect secured and unsecured debts

Florida residents who are overwhelmed by their financial obligations may have a combination of secured and unsecured debts. Secured debts are loans that are tied to physical property that can be seized if the debtor defaults. The most common examples of secured debts are home mortgages and auto loans. Unsecured debts are credit cards, student loans, business lines of credit and other kinds of loans that are issued based on the debtor's creditworthiness alone.

When a debtor stops making payments on a secured debt, the holder of the loan can simply seize the car or initiate foreclosure proceedings on the residence. However, a secured debt can become an unsecured debt if there is a discrepancy between the outstanding balance and the sale price for the seized property. A 'deficiency balance" is common with repossessed cars, and many former car owners are sued for the difference between the sale price of their repossessed car and the amount that they owed on their car loan.

Though a bank is not allowed to seize property for an unsecured debt, it can file a lawsuit against the debtor and turn an unsecured debt into a secured one. If a bank wins its lawsuit against a debtor, the court may issue a judgment that allows the bank to seize property from the debtor or garnish the debtor's wages.

People who are being sued by creditors and collections agencies may want to talk to an attorney about their options. An attorney could advise a client that filing for bankruptcy could put at least a temporary stop to litigation and collection activities.

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