Understanding unsecured debt and what it means for you
Many Florida residents deal with debt and financial problems. However, many do not know that there are legal options available that will let them deal with their debt.
Bankruptcy allows many consumers to discharge their debt and pursue a stronger financial future. Your options depend largely upon the nature of your individual financial situation.
There are two main types of consumer bankruptcy, Chapter 7 and Chapter 13, and your particular financial circumstances will affect which best suits your needs. This includes your income and whether your current debts are secured or unsecured.
Knowing the difference between these two could help you understand more about the bankruptcy process.
Secured versus unsecured: why does it matter?
Debt that is secured with an asset is considered secured debt. This includes debts such as car loans and home mortgages. If you default on these loans, the creditor may have the right to take back that asset.
Unsecured debt is debt that is not “attached” to specific assets such as:
- Medical bills
- Credit card bills
- Utility bills
- Student loans
- Personal loans
For lenders, these types of debt carry higher risks, which is why these debts often come have high interest rates. When you fall behind on payments for unsecured debt, it can quickly spiral out of control and lead to missed payments on other things as well.
If you are behind on payments on an unsecured debt, a creditor will attempt to collect payment from you one way or another. If this does not work, the it may turn to a collection agency, which often leads to less desirable attempts to collect the debt. Common practices include wage garnishment and more.
Getting rid of unsecured debt
Fortunately, you have the right and ability to reduce or erase your debts with bankruptcy. In fact, it may be the best way to deal with your unsecured debt once and for all.
Upon filing for bankruptcy, an automatic stay will go into effect. This stops all collection efforts, including wage garnishment, calls and nasty letters from debt collectors.
When your unsecured debt takes over your financial security, it is time to take action and fight for a better tomorrow. Through bankruptcy, you can obtain a more stable and stronger foundation for your financial future.