What Is the Difference Between Secured Debt and Unsecured Debt?

What Is the Difference Between Secured Debt and Unsecured Debt?
Understanding the difference between secured debt and unsecured debt is easier than you think. Think of the word “secured” as the old-fashioned way of saying “tied.” You would never tell someone to secure their shoes so they do not trip on their laces, but think of the word “secured” in that sense.
A mortgage is “secured” because it is “tied” to the house. You make monthly mortgage payments to the mortgage company. If you do not make your monthly mortgage payments at some point the mortgage company will foreclose on the house. A car note is “secured” because it is “tied” to the car. You make monthly payments to the automobile financing company. If you do not make your monthly payments at some point the automobile financing company will repossess the vehicle.
Contrast this with unsecured debt such as credit cards, medical bills, deficiencies on automobiles which have been repossessed, a deficiency on a house which has been foreclosed, personal loans, payday loans, judgments, and lawsuits. In this case the debt is not “tied” to any tangible item of value. When the debt is unsecured the creditor is not looking to take the items back, they want the payments.
Although credit cards are usually unsecured, there is an exception if it is an “in-store” card. Depending on what you purchased with an “in-store” card, you may have created what is known as a “purchase money security interest”, in which you would have to either continue to make the payments or return the item you purchased.
The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.
By: Michael Benkstein, Esq.
Managing Attorney, Bankruptcy Department
The Law Offices of Joumana Kayrouz, PLLC
1000 Town Center
Suite 800
Southfield, MI 48075
(phone) 248-557-3645
(fax) 248-200-0645


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