Bankruptcy Alternatives / Debtor's Options

Secured vs. Unsecured Assets FAQ

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Q. What makes a creditor secured?
A. Secured creditors possess specific legal rights to take back ownership of an asset should the debtor default on the corresponding security agreement. In plain english this means when you get a secured loan you promise if you do not pay what you owe the creditor can take a physical thing of value from you to help repay the original debt.

Q. How do they obtain these rights?
A. Most times the debtor grants them in consideration for the creditor giving them a loan to purchase the asset.

Q. Can you give some examples?
A. The mortgage holder on a house, a leinholder on a car, a commercial loan secured by the inventory and receivables of a business.

Q. Is there a way for a creditor to obtain secured rights without the debtor's permission?
A. Yes, there are Mechanic's leins for creditors who have done work to a vehicle or property and governmental tax leins. Also, the courts can grant any creditor an attachment pending a trial or an execution after a judgement has been awarded. When recorded properly at the registry of deeds these vest secured rights in the creditor which may give the creditor even more rights than a mortgage holder.

Q. How can they get more rights?
A. Mortgages usually secure only a single asset, an attachment or execution can encumber every property owned by a debtor recorded at the registry of deeds where the attachment or execution is recorded. The creditor may gain even more rights by recording at more than one registry. Fortunately for the debtor, attachments and executions usually end up in a low priority position.

Q. What does priority position mean?
A. I like to describe priorities as a line. Imagine when you sell your house the buyer puts a pile of cash on the closing attorney's desk. Then everyone who wants any of it lines up in a specific order called "priority".

Q. How would this work in a normal setting?
A. First in line comes the city or town for municipal taxes. Next steps up the first mortgage holder followed by the second mortgage holder, if any.

Q. My home equity loan is really a second mortgage, right?
A. Yes, most of the time that will be the case.

Q. What about my equity in the house?
A. The homeowner stands at the end of the line. Any money left when it's your turn goes to you.

Q. How does this change with attachments, executions and tax leins?
A. As these things happen the secured creditors basically just get in the line.

Q. Does it matter how much they are owed?
A. Not for priority, it's first come first served.

Q. What if there won't be any money left for me?
A. Then you no longer have equity in the house.

Q. What if more creditors join the line after there is already no equity?
A. They have obtained a position with little or no value. When the money pile has been fully distributed anyone left in line gets nothing. The person in line when it runs out might not be paid in full.

Q. Does the rest of the debt go away?
A. Absolutely not. Once the security for the debt goes away it just becomes unsecured debt.

Q. Where do the unsecured creditors stand in this line.
A. They don't, unsecured creditors have no right to be in line, that's essentially the difference between secured and unsecured creditors.

Q. Can creditors stop me from selling my house if they will not be paid in full at the closing?
A. In theory yes. Your new buyer needs clean title to the property. If a secured creditor does not want to release their position for a partital payment they can hold up the sale. For cases where a secured creditor will get zero they can get even more stubborn. This situation even comes up frequently in cases with only one mortgage where the home sells for less than the outstanding mortgage. In cases like these you may want a professional mortgage negotiator to set up a short sale or a deed in lieu of foreclosure.

Q. How do unsecured creditors get paid?
A. Either by you paying them volunarily or by court order. Remember, unsecured creditors may also gain secured rights through the courts.

Q. What about the threats from the collection agencies?
A. They are exactly that, threats. Only a lawyer can back them up. If you would like to enter into a payment plan sometimes these agencies can be helpful. If you can not enter into a plan their only choice is to go away or pass the case on to an attorney for the creditor.

Q. Can they still call me?
A. So long as it doesn't become harassment they may call occasionally to check on your status. One of the bonuses of your hiring an attorney or debt settlement company is that you just tell the agency once to call your representative instead and you'll never get a call from them again, it will be your lawyer's or debt negotiator's job to field their calls.

Q. What are some examples of unsecured debt?
A. Most credit cards, debts to stores and money owed for services.

Q. Can some credit card debt be secured?
A. If the card was secured by a savings account then the debt is secured up to the amount of the savings. Sears card holders should make special note that Sears will consider major purchases such as appliances and computers secured transactions under the terms of their credit agreement. I have seen them go as far as claiming old tires and car batteries as secured.

Credit card debt reduction analysis to help learn how to eliminate your credit card debt.

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Debt Consolidation / Debt Settlement Program - Consolidate your credit card and unsecured personal debt with a program to settle balances for 30-50 cents on the dollar. Make monthly payments toward the total settlement over a period of years. Free initial consultation. Learn more and see if your situation fits the program online.

A Guide to Borrowing Money with Bad Credit - Including informational articles on obtaining a home mortgage, auto loan, credit card or unsecured personal loan.

Credit Cards For People With Bad Credit - Read either informational articles on obtaining any type of bank card or credit card with bad credit, including a definition of what is bad credit or look at a complete set of FAQs dealing secured credit cards.

Credit Repair and Credit Rebuilding -Credit repair and credit rebuilding article. Topics include how to repair your credit and warnings about credit repair scams. Links to other credit repair sites and professional credit repair services plus my own Free Guide to Help Repair and Rebuild your Credit Report. For more credit help try 14 Do's and Don'ts To Raise A Score Fast or the Credit Score FAQ.

Who to pay when you can't pay everyone - An article addressing cash allocation for debtors.

How to Get money when you need money - Examines WHEN you really NEED money and how to get money even with bad credit for an emegency or financial crisis.

Stop Home Foreclosure Help - Articles to better understand the foreclsoure process and how to avoid a foreclosure including an interactive tool to analyze your own situation and point you in the right direction to keep your home, a list of various ways to halt a foreclosure, a list of 10 mistakes to avoid when facing foreclosure and foreclosure myths.

Personal Home Budget Analysis - An interactive tool to learn where your money REALLY goes. Input your income and expenses, the program will automatically determine if you have accounted for all you have spent. When you have discovered all your expenses you will be know the details of any overspending. Use this information to help plan and keep a monthly budget or change spending to avoid further debt or bankruptcy.

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Nothing contained herein should be construed to constitute advice for your personal circumstances. This is intended as a peripheral exposure to the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws or their alternatives. Whether or not you should file a Chapter 7 bankruptcy, Chapter 13 bankruptcy, or any bankruptcy, will vary depending on your personal circumstances and should only be undertaken after careful consideration, analysis and after consultation with an attorney experienced with such matters. These pages may contain information and rules peculiar to the Commonwealth of Massachusetts.

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The most recent update of this page occurred on 01/20/10.