What is Secured or Unsecured Debt?
When a lender requires collateral as security for a loan, the resulting debt is “secured” by the collateral, and the lender has a “security interest” in the collateral. For most people, these kinds of debts are used to finance the purchase of a house and a car. The lender has secured the debt by taking a security interest in the house, and you have signed a mortgage that recites the terms.
In contrast, a debt is “unsecured” if the creditor has not required any collateral as a condition. Credit card debt and debt from medical bills typically fall into this category.
When a creditor brings a lawsuit for the collection of an unsecured debt, the goal is to obtain a court judgment. Once a creditor has been awarded a judgment by the court, the creditor can then use the judgment to “attach” assets, such as your home. Thus, through the legal process, a creditor can transform an unsecured debt into a secured debt by obtaining a judgment and attaching property.