What Is Unsecured Debt

This is a great question! You’d be surprised how many people don’t know the difference between “secured” debt and “unsecured” debt

Definition of 'Unsecured Debt'

A loan not backed by an underlying asset. Unsecured debt includes credit card debt, medical bills, utility bills and any other type of loan or credit that was extended without a collateral requirement. It presents a high risk for lenders since they may have to sue to get the money they’re owed if the borrower doesn’t repay the full amount owed.

As a result of this high risk, unsecured debt tends to come with a high interest rate. Unsecured debt can be wiped out by sequestration / bankruptcy.

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Myth Busters

Statement – My lawyer can write a letter to all my creditors to explain my financial situation and the creditors will write off my debt

Answer – Maybe but maybe not. Businesses are in business to make money. If they wrote off all the bad debt there would be no business. Sometimes the client might get lucky with a creditor and have a smaller amount written off but not in general. That is why our country has laws to govern the processes of debt.

Statement – My friend did his sequestration for free, not a cent paid.

Answer – The attorney could complete the legal process with no charge possibly for a friend. However when it comes to the settling of the debt by the Trustee there will need to be an advantage for the creditors. In other words they need to be paid.

       Any financing that has an asset that you can lose if the creditor is not paid.

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaBond – Any Property: House, flat or land

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaVehicle – All finance agreements but does not include rental / lease agreements.

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaFurniture accounts – While there is an outstanding balance; the furniture is the asset.

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaLoans with a ceded policy – Any loan that has an insurance policy ceded as security.

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaLoans with a ceded asset – This could be a vehicle or jewelry or an item of value.

There is no asset to secure the financing. This financing is usually done according to your potential income. This debt is usually also the last debt to be paid when someone is in financial difficulty.

The risk of not paying this debt is the creditor garnishing your income.This debt can only be eliminated by sequestration / bankruptcy.

 

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaCredit cards

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaStudent loans

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaShort term loans

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaBank loans

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaClothing accounts

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaRetails loans

Ursula Gouws Official Logo - Bankruptcy and insolvency services South AfricaMedical accounts

Statement – I am not scared of judgments, I already have a few on the credit bureau.

Answer – Some creditors have a policy of taking judgment on a client and then closing the file. Other creditors take the collection process to a garnishee court order.

There is no recourse to stop this garnishee, other than sequestration, or to curtail the monthly expenses.

Statement – I will give my car back to the bank and I won’t owe anything.

Answer – This depends on the value of the car and the outstanding balance.

Should the bank take your car and resell it at a loss. You will get a call from the bank for the shortfall. The bank will first attempt at an unsecured loan and if not paid then it will go to judgment.

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