One of the most important factors that a lender will consider when deciding to make a loan is how the loan will be paid back in the event that the borrower fails to pay as agreed under the terms of the loan agreement.
Most consumer loans fall under one of two categories, generally:
Secured loans and unsecured loans.
I think it will be helpful to first define what those terms mean, and then provide some specific examples of each along with some basic information that I believe Florida consumers will find useful.
- A secured loan is one where specific collateral (property) is pledged to guarantee the loan. If the borrower fails to pay as agreed (default) then the lender will repossess or foreclose on the collateral and then sell it so that the debt can be paid from the proceeds of the sale of the collateral.
- An unsecured loan is one where no specific collateral is pledged to guarantee the loan. Unsecured loans generally are made to an individual or small business based on nothing more than the creditworthiness of the individual or business who is responsible for the loan.
- Somewhat related is the concept of a recourse vs. a non recourse loan. A recourse loan is a secured loan where the lender reserves the right (in the agreement or by law) to pursue a claim against the borrower above and beyond the collateral pledged as security. This topic is covered in depth in a separate blog article.
Common examples of secured loans are:
- Home loans (the note and the mortgage)
- Automobile loans
- Title loans (for specifically titled property, when the money being loaned is NOT for the purchase of the collateral)
- Many furniture financing agreements are secured
Common examples of unsecured loans are:
- Credit cards
- Student loans
- Medical debts
- Signature / personal loans
Simply because a loan is unsecured doesn't mean that a lender has no way to collect if the borrower decides to not pay.
The lender may sue in court to recover a money judgment against the borrower and then proceed to utilize remedies available to a judgment creditor to collect on the judgment. These remedies include, but are not limited to: post judgment discovery (depositions and written discovery), wage and bank garnishment, property levy and numerous other unpleasant collection methods. This is where much of my years of experience were focused when I represented creditors and debt buyers.
If a secured loan is a recourse loan, then the lender may also seek a judgment against the borrower to recover any monies due under the agreement which are not satisfied by the sale of the collateral. An amount due after the collateral is sold and the proceeds are applied to the outstanding loan obligation is referred to as a deficiency. (recourse loans and deficiency balances, lawsuits, and judgments are the subject of a separate Blog article)
When an individual (or business) is considering bankruptcy, it is important to identify which loans are secured and which are unsecured. Whether the loan is secured or not will have a significant impact on which type of bankruptcy is appropriate, what will happen to the secured property, and what will happen to the underlying loan obligation. These issues are complex and fact specific. An experienced bankruptcy attorney can help you navigate through these issues to help you achieve a realistic outcome based on the specifics of your overall situation.
At the Law Office of Alex McClure, I pride myself on working closely with my clients to provide practical solutions to their consumer debt problems.
I do everything in my power to provide options that my clients didn't even know existed before consulting with me.
Contact the Law Office of Alex McClure today to find out how I can help you create a sustainable financial future for yourself.
The Law Office of Alex McClure provides services in Lake Mary, Sanford, Longwood, Deltona, Deland, Orlando and all of Seminole, Volusia, Orange, Brevard and Lake Counties.