There are many different types of loans, several of which can become complicated when financial hardship strikes. Depending on the type of loan missing a payment can result in some steep consequences. Even in bankruptcy certain loans pose unique challenges, the key is knowing what to expect from various loans before you sign that application.
Understanding Loans
There are two basic types of loans, secured and unsecured. Unsecured loans are lines of credit that are free from a contractual tie to income or assets. Credit cards, personal loans, and student loans are all examples of unsecured debt. While there is a risk of lawsuits for defaulting on unsecured loans, the majority of these debts rarely result in significant penalties. Student loan debts are the exception and can lead to wage garnishment.
A secured loan is one that is taken out against your income or asset as collateral. Home loans, car purchase loans, payday loans and car title loans are examples of secured loans. Defaulting on a secured loan puts this collateral at risk of liquidation. In a mortgage or car purchase loan, missing a payment can lead to foreclosure or repossession. Missing a payment on a payday loan can leave you at risk of wage garnishment. The risk of liquidation is what makes these loans risky.
In bankruptcy, most unsecured loans are resolved easily. Many people find that discharging unsecured loans require little out of pocket cost, the exception being student loans. Student loan debts are typically not eligible for bankruptcy protection, and, if they are, they become a priority debt.
Secured loans are also handled as priority debts. In other words, any amount of repayment or liquidation ordered by the court in your bankruptcy case is likely to go towards satisfying these debts first. Mortgage and car loans will take precedent over payday or title loans, as the latter are not considered priority loans. Further, some bankruptcy cases will require that the payments be resumed on a mortgage or car loan in order to ensure asset protection. An experienced Tampa bankruptcy lawyer can help you resolve your loan debts and protect your assets in the process.