If you are struggling to pay your debts, it may be a good idea to seek protection from creditors in a Michigan court. In many cases, filing for bankruptcy can help you eliminate both secured and unsecured debts. Take a closer look at the differences between these two types of balances and how they may impact your debt repayment strategy.
What is unsecured debt?
An unsecured debt is one that is not backed by any collateral. Instead, the only assurance a lender has that it will get its money back is a promise from the borrower to return it in a timely manner. Examples of unsecured debts include credit card balances, personal loans and medical bills. In most cases, these types of balances can be eliminated in a matter of weeks or months for those who qualify for Chapter 7 bankruptcy.
What is secured debt?
A secured debt is one that is backed by collateral such as a house, car or shares of stock. Typically, your mortgage is secured by the home that was purchased with the funds provided by the lender. Your auto loan is also generally secured by the asset purchased with funds provided by your lender. If you want to retain property secured by a collateral in a bankruptcy, you may want to file for Chapter 13 protection. However, it’s worth noting that assets may be seized for nonpayment after your case has been discharged.
Filing for bankruptcy may be an effective way to regain control over your finances. Although it may do some short-term damage to your credit score, it may also eliminate debt balances that you might not be able to repay in a timely manner. Alternatively, bankruptcy proceedings may provide leverage to renegotiate the terms of a secured loan.