1DEBT / BANKRUPTCYDEBT / BANKRUPTCYBy: Becky Stocker, Megan Olson, Dallin By: Becky Stocker, Megan Olson, Dallin Wood, Mathew Hurst, and Erik Jenkins Wood, Mathew Hurst, and Erik Jenkins FCS 5400FCS 5400Secured DebtSecured Debt••A debt on which a creditor has a lien. The A debt on which a creditor has a lien. The creditor can institute a foreclosure or creditor can institute a foreclosure or repossession to take the property repossession to take the property identified by the lien, called the collateral, identified by the lien, called the collateral, to satisfy the debt if you default.to satisfy the debt if you default.Examples of Secured DebtExamples of Secured Debt••Home mortgageHome mortgage••Car LoansCar Loans••Store Purchases Store Purchases Home MortgageHome Mortgage••A home mortgage is one of the most obvious A home mortgage is one of the most obvious examples of secured debt. A lot of home examples of secured debt. A lot of home financing is done under a Deed of Trust which financing is done under a Deed of Trust which provides a quick and inexpensive way for the provides a quick and inexpensive way for the lender to take the home from you if you default lender to take the home from you if you default on your mortgage payments.on your mortgage payments.••Your house is considered collateral towards Your house is considered collateral towards debt. If you default on payment, the bank debt. If you default on payment, the bank seizes your house, sells it and uses the proceeds seizes your house, sells it and uses the proceeds to pay back the debt (also known as to pay back the debt (also known as foreclosure). foreclosure). Car LoansCar Loans••When you buy a car, the lender will put a When you buy a car, the lender will put a lien on your car. Liens on vehicles are lien on your car. Liens on vehicles are usually shown on the title to the vehicle. usually shown on the title to the vehicle. This lien allows the creditor to repossess This lien allows the creditor to repossess the car anytime you default in your the car anytime you default in your payments.payments.Store PurchasesStore Purchases••When you purchase something at a store it is When you purchase something at a store it is very common for the store to retain a security very common for the store to retain a security interest in the item you are purchasing. interest in the item you are purchasing. Installment payments were established to help Installment payments were established to help consumers purchase goods. As a result, Sears consumers purchase goods. As a result, Sears may be able to take the bed, television, or even may be able to take the bed, television, or even the hammer you bought from them if you don’t the hammer you bought from them if you don’t make your payments. The basis for this security make your payments. The basis for this security interest is the agreement you signed when you interest is the agreement you signed when you first opened the account.first opened the account.2Unsecured DebtUnsecured Debt••A debt that is not tied to any item of A debt that is not tied to any item of property. A creditor doesn't have the right property. A creditor doesn't have the right to grab property to satisfy the debt if you to grab property to satisfy the debt if you default. The creditor's only remedy is to default. The creditor's only remedy is to sue you and get a judgment. sue you and get a judgment. Examples of Unsecured DebtExamples of Unsecured Debt••Credit CardsCredit Cards––Example: Visa, Discover, etc.Example: Visa, Discover, etc.••Gas CardsGas Cards––Example: Exxon, Shell, etc.Example: Exxon, Shell, etc.••Store Charge CardsStore Charge Cards––Example: Department stores, WalExample: Department stores, Wal--Mart, etc.Mart, etc.••Payday LoansPayday Loans––Example: Check cashing advancesExample: Check cashing advances••Personal LoansPersonal Loans––Bank unsecured loansBank unsecured loans••Medical BillsMedical BillsCredit CardsCredit Cards••Credit Card Debt results when a client of a credit card Credit Card Debt results when a client of a credit card company purchases an item or service through the card company purchases an item or service through the card system. system. ••The results of not paying this debt on time are that the The results of not paying this debt on time are that the company will charge a late payment penalty (generally in company will charge a late payment penalty (generally in the US from $10 to $40) and report the late payment to the US from $10 to $40) and report the late payment to credit rating agencies.credit rating agencies.••Universal DefaultUniversal Default--Other credit card companies charging Other credit card companies charging for late paymentsfor late paymentsPayday LoansPayday Loans••A payday loan or paycheck advance is a A payday loan or paycheck advance is a small, shortsmall, short--term loan (typically up to term loan (typically up to $1,500) that is intended to bridge the $1,500) that is intended to bridge the borrower's cash flow gap between borrower's cash flow gap between paydays. Payday loans are also sometimes paydays. Payday loans are also sometimes referred to as cash advances, though that referred to as cash advances, though that term can also refer to cash provided term can also refer to cash provided against a prearranged line of credit such against a prearranged line of credit such as a credit card.as a credit card.Unsecured vs. Secured Unsecured vs. Secured ••Unsecured debt is negotiable because there is Unsecured debt is negotiable because there is nothing being held as collateral for a penalty if nothing being held as collateral for a penalty if the debt goes unpaid or is settled.the debt goes unpaid or is settled.Instead, Instead, interest is accumulated on the balance left to interest is accumulated on the balance left to pay as an incentive to pay the bill.pay as an incentive to pay the bill.••Secured debt is nonSecured debt is non--negotiable. This is an negotiable. This is an amount of money borrowed for something amount of money borrowed for something specific that is also used as collateral.specific that is also used as collateral.If the If the debt amount goes unpaid, the object used for debt amount goes unpaid, the object used for collateral could be retracted.collateral could be retracted.History of BankruptcyHistory of