It\’s very important that you understand the difference between the types of creditors you might have. Most consumer debt is either a secured debt or an unsecured debt.
Secured Creditor
This creditor will usually have a lien against some part of your personal property. A lien basically means that this creditor has a financial interest in that particular property, which in most cases is either your car or perhaps even your principle residence. The lien itself may have been voluntary on your part or it could also be involuntary, which means you failed to pay taxes or it was put in place as part of a court judgment. You will find it impossible to sell any property with a recorded lien against it.
A secured creditor is in an excellent position in relation to the debt they\’re owed by you because if the debtor (you) does not make payments on time or the debtor simply fails to make payments at all, then a secured creditor can repossess or foreclose on their interest in your property.
Unsecured Creditor
As the name suggests this type of creditor will possess no financial interest in any property you might own (including your home or your car) and most rely on either voluntary payments from you, or in some cases the court may order that your salary or other sources of income are garnished to repay some or all of the debt that you owe. This obviously leaves any unsecured creditor in a \”weaker\” position than a secured creditor.
Now the next issue to consider is when, as a debtor, you may have to consider filing for Chapter 7 or Chapter 13 bankruptcy and how, in turn, this will affect your secured and unsecured creditors.
What can often happen during Chapter 7 bankruptcy is that a court can put a stay on the collection of any unsecured debt on the part of unsecured creditors but can still allow your secured creditors to foreclose on whatever property they have a lien against it. It\’s also at the discretion of the bankruptcy court to deny or delay attempts by a secured creditor to foreclose or repossess whatever property they may have a lien on. This will depend on the personal and financial circumstances on the person who\’s actually filing for bankruptcy. If, however, the court does put lift a stay of the creditors trying to foreclose on the property they are then legally prevented from repossessing any part of your property and they\’re also prevented from directly contacting you in any way.
The good news, from a debtors point of view, is that if your creditors decide to ignore the court order or stay on proceedings and either continually contact you or attempt to remove any part of your personal property, in payment of your debt, the same court can remove the lien that your secured creditors have on your property. This can effectively eliminate your debt to these secured creditors in the most extreme cases. They bankruptcy court may also fine the secured or unsecured creditor who continues to contact the debtor after being notified that the debtor has filed for bankruptcy protection and that the automatic stay is in full effect.