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What is an unsecured debt?

As someone living in Washington, D.C. and contemplating bankruptcy, you've likely heard these two terms before: secured debt and unsecured debt. But what exactly is unsecured debt? What does it mean for you if you have unsecured debt?

The Balance states that lenders cannot collect collateral on unsecured debts, which is the primary difference between these two types of debts. Your assets cannot usually be captured, and there is no collateral that's taken before the loan is given out. This makes them high-risk for lenders, as they have no way of ensuring that you'll be able to repay what you owe. For this reason, delinquent unsecured debts are taken quite seriously.

Make no mistake, though. Even if collateral can't be collected, a lender still has other methods to get you to pay back any delinquent debts you may have. They could put a lien on your assets. You could be sued or have your wages garnished, meaning a portion is taken out before it ever reaches you. They may even hire a debt collector to do the work for them, and have that debt collector harass you for money. They could also report you to credit bureaus, damaging your credit report and making it more difficult for you to take out other loans, get new credit cards, and so on.

Some common unsecured debts include payday loans, student loans, and medical bills. However, the biggest source of unsecured debt is credit card debt. If you are in debt in any of these areas and have fallen behind on your payments, be aware of the fact that the lender may take swift action against you. This isn't meant to be taken as legal advice; you may wish to see a legal professional for guidance in this situation.

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