Financial Mess. What kind of Mess? -Types of Debt

Debt is what you owe. If you are reading this it is likely that Debt is the problem. The easiestway to understand your debt, or your problems is to simplify it. There are three kinds of debts: Secured, Unsecured and Priority.

WHAT IS A “SECURED DEBT”?

Secured debt is tied to an asset.(Example: Mortgage is connected to a house. If you miss the payments you will miss the house.) A Secured Debt is a debt where a person or business has an interest in one of your assets as collateral for a loan. If you do not pay your debt, the creditor can fore close on or repossess the asset.

All Secured Creditors must be listed whether or not you intend to keep the property and continue paying for it. Some examples of secured debts are:

  • Home loans (list each loans separately)

  • Car and truck loans;

  • Credit cards bills for furniture and big-ticket items purchased from a Furniture Store, Montgomery Ward, and Sears;

  • Any debt to your employer that is secured by your pension, 401(k) plan, or any other account, whether or not you intend to repay the debt;

  • Any account that you cosigned for someone else that is secured (e.g., vehicle, furniture, or jewelry); and

  • Judgments obtained against you (in some cases).


WHAT IS AN “UNSECURED DEBT”?

Unconnected debt. An Unsecured Debt is a debt where the person or business to whom you owe money cannot foreclose on or repossess a specific piece of your property if you do not pay. Some examples of unsecured debts are:

  • Most credit cards, medical bills and personal loans;

  • Liability for automobile accidents and other negligence;

  • A deficiency balance owed after a foreclosure or repossession;

  • Any account (not secured) that you cosigned for someone else;

  • Anyone who has sued you but has not yet obtained or recorded a judgment; and

  • Debts that you were required to pay your ex-spouse in a divorce, dissolution of marriage, or any other marital termination proceeding (other than child support and alimony).

WHAT IS A “PRIORITY DEBT”?

A “Priority Debt” is a special type of unsecured debt. There are five types:

Taxes—Any claim for taxes, customs duties, and penalties made by the federal government or IRS, a state government, or any other taxing authority (such as county property taxes). If the tax was assessed more than three years ago, it may be considered a general unsecured debt.

Student Loans—Most student loans are given priority status.

Alimony and Child Support—An award of alimony or child support to your spouse or ex-spouse, or payments that, although called something else, are in the nature of alimony or child support.

Wages and Contributions—Claims for wages, salary, or commissions, including vacation, severance, sick leave, or contributions for an employee benefit plan.

Deposits—Claims for money given to you to do something that you did not do (such as a rental or cleaning deposit).

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