You can usually divide debts into two types: secured and unsecured. But what does that mean? How are they different? Are there different debt settlement steps for each?

Secured Debt
Property, or collateral, is used to guarantee repayment. If these kinds of debts aren’t repaid, you’ll lose your collateral. Mortgages, home equity loans, and car loans are all secured debts.

Unsecured Debt
Debts that aren’t attached to any one piece of property (or any property) are unsecured. If these debts aren’t paid, the debtor can take you to court and get a judgment to have your wages garnished in order to be repaid.

Federally backed student loans and tax debts don’t fit into either of these categories. Even though these debts aren’t secured by collateral, the government can put drastic repayment procedures in motion without getting a judgment first.

Settle Debts through Payments
Income that doesn’t go toward other monthly expenses and necessities should be put toward paying down your debts. There are a few different ways you can approach debt settlement:

• Make your own budget and contact debtors directly
• Consult a credit counselor or counseling agency (paid or non-profit charities)
• Enroll in a debt management plan
• Hire a debt negotiation service

Each of these options presents pros and cons, including cost and time investments. It is important to research and understand each before deciding how you’ll settle your debt.

Bankruptcy

Bankruptcy is a federal court process that either removes your debt or helps you settle debts under the protection of the court. Most bankruptcies are either “liquidation” or “reorganization”:

Chapter 7 bankruptcy, or “liquidation”
Under Chapter 7, the court will discharge all dischargeable debts. However, not all debts can be discharged; federal student loans cannot be discharged during bankruptcy, for example.

Chapter 13 bankruptcy, or “reorganization”
When applying for Chapter 13, you file your repayment plan with the court. Some debts will have to be repaid in full, others only partially or not at all.

Bankruptcy can provide you with a fresh start, but it can also take a toll on your financial future. It is important to do your homework and contact a bankruptcy attorney.

For more information about debt settlement, LawyersBooks.com has several resources, including Negotiate and Settle Your Debts – A Debt Settlement Strategy: Learn How to Settle Debts as Low as 20 Cents on the Dollar and Managing Debt for Dummies.

Tampa divorce attorney of Westchase Law P.A. has contributed resources for the development of this content.