Secured vs. unsecured debt and bankruptcy

A secured debt is one that allows the creditor to make a claim against a specific asset.  For example, your home loan and your car loan are secured debts.  The creditors who loaned you the money for those items can make a claim against the "security" (the house or the car) and attempt to recover the property to sell it and use the proceeds to pay the debt.  Other creditors might also attempt to collect debts by filing a lien on your home, for example, but the secured creditor will have priority.  An unsecured debt, on the other hand, is one where the creditors have no right to make a claim against specific assets, because there is not tangible property attached to the debt, such as credit card debt.

The distinction is important when you file bankruptcy.  If you file Chapter 7 Bankruptcy, you can choose to keep the property that is the security for a debt (e.g., car) and pay off the debt or, if you cannot pay the debt, to give the property back to the secured creditor.  In that sense, the secured creditor has more protection in a bankruptcy situation than an unsecured creditor. If you file Chapter 13 Bankruptcy, you are allowed to keep the property, but you must pay your debt to the secured creditor in accordance to the Chapter 13 bankruptcy plan.  Hope that helps.  If you decide to file bankruptcy, your bankruptcy attorney will help determine how this information pertains to your specific situation.