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Different types of debt

Consumers who live in New Mexico might think about all debt as being the same and, in a way, it is because it all boils down to some financial obligation owed to another party. However, there are definitely distinct types of debt and they each have different pros and cons associated with them. The different types of debt, secured and unsecured debt, may also inform what type of bankruptcy plan a person should consider if they are in need of that level of debt relief.

As explained by Magnify Money, secured debt is any type of debt that is attached to some asset in the form of collateral. Two of the most common examples of this are automobile loans and home loans. In contrast, unsecured debt has no associated asset or collateral. Perhaps the most common form of unsecured debt Americans hold today is credit card debt. Personal loans or student loans are other examples of this type of debt.

According to The Motley Fool, the interest rate for secured debts is generally quite a bit lower than for unsecured debts and this is tied directly to the level of risk for the lender. Because the lender has the ability to seize the associated asset with a secured debt, the risk to them is considered lesss than for a debt without colllateral.

In a Chapter 7 bankruptcy, lenders can take homes, cars or other assets to obtain some amount of repayment on debts. Chapter 13 bankruptcy plans offer consumers a way of repaying debts without losing assets.

 

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