A basic understanding of secured and unsecured debt is critical to grasping the scope and process of a security agreement. Many individuals and organizations take on both types of debt, but in different contexts.
Secured debt is tied to an asset such as real estate or stock. This asset serves as collateral; fail to pay up, and the creditor takes possession of or otherwise uses the collateral. Common examples of secured debt include auto loans and mortgages. Such assets are never fully owned until the debt has been completely paid.
Unsecured debt provides no rights to collateral for the creditor. If the debtor fails to make payments then the creditor must take other steps, such as working with a debt collector or suing in hope of garnishing the debtor's wages.
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