What Is Unsecured Debt?

Answer:
Unsecured debt is any debt that is not secured by an asset.

A couple of examples would be credit card debt and personal loans. Unsecured debt typically has higher interest rates and less generous terms than do secured loans such as home mortgages.

Unlike secured debts, there is not a specific asset that is tied to an unsecured debt. For example, an auto loan is a secured debt, and if you fail to make payments, the bank or finance will come and repossess the vehicle. In the case of a home mortgage, failure to make the payments will result in the bank or finance company foreclosing on the home. They will then sell the asset and apply it to the loan before they come after you for the difference.

However, in the case of an unsecured debt, failure to make the payments will not result in the direct seizure of any assets. If you fail to make your credit card payments, they cannot take action on their own to take your assets or garnish your wages. But, this by no means says that they have no recourse to get back their money. They just have one more step to take. If you are unable or unwilling to make the payments as scheduled, and they have exhausted their standard collection methods, they will have full rights to sue you. If they take this step, and you go to court, you will lose, so it is in your best interest to try to work out a settlement or payment plan prior to your court date with the finance company’s lawyers. Once it goes to court, and a judgment is delivered, the finance company will have full rights to attach to your bank accounts, garnish your wages, and make movements to force the sale of other assets in order to satisfy the amount in the judgment order.