Secured and Unsecured Debt in a Utah Bankruptcy Case
In a bankruptcy proceeding in Utah there will typically be two types of creditors: secured and unsecured. A secured creditor is one who has taken secured his loan to you, the debtor, with some type of collateral. For example, a secured creditor may be willing to give you a $250,000 loan to purchase a home if you in return give the creditor a mortgage on the home, which allows the creditor to foreclose on the property if you default on the loan and otherwise collect judgments against you.
On the other hand there are unsecured creditors. Unsecured creditors do not take any interest in any of your property in order to extend you a loan. Instead, unsecured creditors may charge you higher interest rates to cover some of the risk of being unsecured. For example, credit card companies will give you credit cards with multi-thousand dollar lines of credit just to try to get you to purchase goods and services with the credit cards. They hedge their risk by collecting the interest payments.
What does it matter if a creditor is secured or unsecured in a Utah bankruptcy matter?
The difference between secured and unsecured debt will determine in what order the creditors will be paid by the U.S. Trustee out of the proceeds of your assets. The creditor’s status also determines whether the creditor can enter into reaffirmation agreements.
A reaffirmation agreement allows a secured creditor and the debtor (you) to reaffirm the terms of the loan. Thus, the bank who gave you the loan to purchase your home can reaffirm the loan agreement with you (if you want) which would allow you to continue making payments on the home under the loan agreement, thereby allowing you to continue to live in the home.
Have More Questions? Meet with us for a Free Consultation
We’re sure you have a lot of questions about filing for bankruptcy and secured and unsecured debt. Although this site contains loads of helpful information, sometimes it’s best to talk to a Utah Bankruptcy Attorney in person. We are Salcido Law Firm, a Salt Lake City based law firm. Call us anytime at 801.413.1753 and we’ll schedule a free consultation so that you can bounce all of your questions off of us. Or, if you prefer, email us and we’ll email you right back.