What is the Difference Between Secured Debt and Unsecured Debt?
A simple answer to this question is that a secured debt is any debt where the lender has a legal right to repossess some piece of real or personal property you own in the event you default under the obligation to repay the debt. Your home mortgage or car loans are good examples of secured debt. Unsecured debt is what is commonly thought of as "signature loans." A signature loan is a loan guaranteed by nothing more than your signed promise to pay the debt. If you default under that obligation, the creditors' only recourse is to sue you civilly and attempt to garnish your wages or grab your bank account balance. Credit card debt is a good example of unsecured debt.
The law concerning "secured" debt is founded under the Uniform Commercial Code regarding secured transactions and is adopted by most states, including Illinois. There are several different types of secured transactions most of which do entitle the lender to repossess the securing property: mortgages, purchase-money security interests, non-purchase money security interests ("title" loans), etc. In certain rare circumstances, some of these secured interests can be avoided in a bankruptcy. If you have secured loans of those types, your bankruptcy attorney will advise you on how to go about converting such to unsecured debt.
