What is a Secured Debt?

Unlike an unsecured debt, a secured debt is a debt that is attached to something.

The biggest secured debt in most people’s lives is the mortgage which financed the purchase of their house. The loan is secured by a mortgage on the house itself.

The next biggest secured debt for most people is their car loan.

If you purchased furniture at the local furniture store and you make your monthly payments directly to that furniture store, it is probably a secured debt.

If you purchased furniture from a national chain and are making your payments on their credit card for the stuff, it is probably an unsecured debt.

If you fall behind on the agreed payments on your loan, the creditor has the right to seize the security for the debt (the house or car) and sell it to recover his money. If the creditor gets more from the sale than the debtor still owes, he must give the excess to the debtor. If the creditor gets less from the sale, the debtor will still owe the difference.

If you are not sure if your debt is secured or not, look at the original loan agreement. If the stuff you purchased is listed on the agreement, assume it is a secured debt.

Secured debts are not released in a bankruptcy. If you go bankrupt, your mortgage doesn’t go away. If you want to keep your house, you must continue to make your mortgage payments. If you want to keep your car, you need to make the car payments.