Unsecured Debt / by kevin murray

There are two basic forms of debt in this world, unsecured and secured debt.  Your preference when creating debt is for unsecured debt, because unsecured debt basically means that the creditor is relying upon your good faith to pay the monies owed back, whereas with secured debt the creditor will not hesitate in "securing" their debt back from you, by seizing or re-obtaining their collateral such as an automobile or home through implementing the terms and conditions of the contract which you executed with them.  Consequently, this means that with a car loan, that "your" car can be re-possessed when you are in material default of your terms and conditions with your lender without notice to yourself.  Simply stated, it is a misnomer to believe that you "own" a vehicle or a home if you have a car note or mortgage payment, you will only own these items when you have the proper deed or title to them and that is accomplished only when they have been paid in full.


Credit cards were once given out to a select few, but in recent years, credit cards have become available to virtually everyone, even students, with no demonstrable income.   Credit cards are the prime example of unsecured debt; the cards are issued to recipients as unsecured loans, in which the credit card issuers believe that they will receive in return at least a monthly minimum payment from their recipients.  However, for various reasons, there are a significant amount of credit card users who are unable to make their payments on time, or to pay even the minimum, due to loss of job, a combination of too much debt and too little income, health problems, irresponsibility, or other reasons. 


On the surface, because the debt is unsecured, it appears that the consumer is ahead of the curve, after all they still have the material goods, or the memories of delightful dinners or nightclub experiences, and the creditor cannot legally collect or re-possess any of the items purchased by the credit card user.  However, unfortunately, that is just the short-term viewpoint.  The end result of failing to live up to your credit card obligations will often result in a damaged credit score which leads to higher insurance rates, higher loan rates, and in some cases reduced employment opportunities because the potential employer when seeing a low credit score marks it against you as someone that is in lacking in maturity, discipline, or decision-making.


However, it does get worse, credit card issuers can attempt to get a court judgment against you, which will allow them to assert their rights to collect their debt.   Many consumers ignore their court summons to their regret and are thereby subject in most cases to a court judgment against them.  Not appearing in court and not defending yourself is a critical consumer misjudgment.  Creditors that apply for court judgments are counting on two things; the first is that you won't appear and that they will therefore win, the second is that you will appear and that a settlementwill be agreed to (perhapsat 50% of what is owed)  which will be then be legally binding between both parties with specific payment terms.   There is, however, a third possibility, even if the facts appear to be against you, often the creditor has information that is missing or is in conflict with your own records of your statements, payments, fees, notes, and penalties.  It behooves you to dispute those discrepancies and to state so in front of a judge.  No judge, in good standing, will rule against you, but will instead postpone the hearing or transfer it to a higher or different court.  This postponement may be enough for the creditor to lose heart in pursuing you and your debts.  Creditors and debt collectors look for easy targets that will wilt when subject to a court of law. 


You shouldn't wilt, and you should recognize that most, if not all, unsecured debt can be discharged in bankruptcy, and in most cases that bankruptcy will erase any unsecured judgments against you.  While bankruptcy should never be your first option, it is the trump card that bears witnessing to, because in bankruptcy the creditors of unsecured debt will receive in almost all cases, nothing.