Understand how secured debt works
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If you’re a Greensboro, North Carolina consumer who has fallen behind on your mortgage, auto loan, or other secured debt, you should understand what can happen and how best to protect yourself. Secured debt and unsecured debt are treated quite differently in financing agreements, in debt collections should you fall behind on payments, and in bankruptcy. First, you need to understand the difference.
What Is Secured Debt?
A secured loan means the debt is secured by the asset you are purchasing. If you buy an expensive ring on credit, the ring is the collateral that secures the loan. In the case of a car loan, the vehicle secures the loan. With a Greensboro, NC mortgage, the house secures the loan. Collateral makes it less risky for creditors to issue a loan because if you don’t pay, they can take back the item.
With an auto loan, the creditor can repossess at home or work, day or night. With a mortgage, the lender must foreclose on the home, which puts it into an auction and then you’ll be formally evicted by the buyer, which is usually your lender. With jewelry, the creditor calls or comes by to demand the item back and pursues legal action if you don’t hand it over.
How Is Unsecured Debt Different?
Unsecured debt is debt that doesn’t have a collateral safety net for the lender. Medical bills, credit cards, student loans, utility bills, and personal loans (also called signature loans) are examples of unsecured debt. There is nothing to take back, so if you don’t pay your bills, the creditor may engage in debt collections and even take legal action against you.
Creditors that offer you unsecured debt take a greater risk, so they charge higher interest rates than secured loans and may be more aggressive about pursuing collections activity. Unsecured and secured debt not only differ in what options creditors have to collect if a Greensboro consumer falls behind on payments, they also differ in how the debt is treated in bankruptcy.
Secured Debt in Chapter 7 Bankruptcy
For Greensboro consumers struggling to pay their bills, Chapter 7 bankruptcy can help shed debt in just a few months. If you financed a car or have a home mortgage, Chapter 7 affects the fate of the secured debt depending on whether you’re current on your payments and how much equity you have in the asset. North Carolina exemptions protect some equity.
For a home, an individual can shield $35k and a married couple $70k. A reasonable amount of auto equity can be protected. If you’re behind on payments and foreclosure or repossession has been threatened, Chapter 7 will halt this for 90 days. If you can’t catch up, you’ll have to give up the asset. Giving it up may be best in the long-run if you simply can’t afford it.
Secured Debt in Chapter 13 Bankruptcy
Chapter 13 bankruptcy is designed to help Greensboro consumers who are behind on payments on secured debt and allows time to catch up on past-due balances. Chapter 13 offers a three-to-five-year repayment plan that chips away at the back balance. You must also keep up with current monthly payments. It can be a challenge, but it may be worth it.
If you had a short-term problem, like unemployment or an accident that kept you out of work, Chapter 13 might be the perfect tool to get you back on track. You may also be able to strip off a second mortgage on your home if you have low equity. Chapter 13 may reduce your auto loan to the market value of the car and lower your interest rate.
Find Out More About Greensboro Bankruptcy
Have you been threatened with foreclosure or repossession of an asset that is collateral on a secured debt? Are you behind on your bills and not sure what to do? Do you feel that your financial situation is hopeless? Greensboro bankruptcy may be a helpful solution to your financial problems – seek the advice of an experienced bankruptcy attorney.
Contact the Law Offices of John T. Orcutt for a free Greensboro bankruptcy consultation. Call +1-919-646-2654 now for a free appointment at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.