Browse terms
Secured debts and liens
Secured vs unsecured debt
Secured vs unsecured debt comes down to collateral. Secured debt is backed by a mortgage, a pledge of collateral or another lien; unsecured debt is debt for which the creditor holds no security of that kind. 1
Talk to a lawyerWhy does the difference matter in bankruptcy?
Home mortgages, auto loans and tax liens are examples of secured debt, and houses and cars are common collateral. Credit card, student loan and medical debts are examples of unsecured debt. 1 2
The lien is why bankruptcy treats them differently. A discharge releases the debtor from personal liability for certain debts, but a valid lien that was not avoided in the case remains afterward, so a secured creditor may still enforce it against the property. 3
One loan can be both. When the collateral is worth less than the debt, the claim is secured up to the value of the collateral and unsecured for the rest. 4
How are secured and unsecured debts treated?
| Question | Secured debt | Unsecured debt |
|---|---|---|
| What backs it? 1 | A mortgage, pledge of collateral or other lien 1 | No security such as a mortgage or lien 1 |
| What can the creditor reach? 5 | The collateral, if the debtor does not pay 5 | Generally no particular property of the debtor 5 |
| In Chapter 7 6 2 7 | The debtor states whether they will surrender the property, redeem it or reaffirm the debt 6 2 7 | Credit card and medical debt may be discharged; some debts, such as support and certain taxes, generally are not 6 2 7 |
| In Chapter 13 5 | Can be rescheduled over the plan, except a mortgage on the main home 5 | Need not be paid in full if the plan pays all projected disposable income and at least what a Chapter 7 liquidation would 5 |
| After a discharge 3 | A valid lien that was not avoided remains 3 | Personal liability for the debts the discharge covers is released 3 |
General rules only. How a specific debt is treated depends on the facts of the case.
Common questions
What are priority debts?
Does bankruptcy wipe out a lien?
Not by itself. A valid lien that has not been avoided in the bankruptcy case remains after the case. 3
Which debts does bankruptcy not erase?
Some debts are generally not discharged in Chapter 7, such as alimony and child support, certain taxes and most government-funded or government-guaranteed education loans. 7
Sources
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