A loan that is unsecured is one that is not linked to collateral, which makes them riskier from the point of view of the creditor. There is a greater chance of the borrower defaulting on the loan, which is part of the reason unsecured loans typically have higher interest rates. However, unsecured loans are not without risk to the borrower, as there are potential financial penalties for defaulting on payments.
The longer you go past the due date for payment on an unsecured loan, the more damage you will do to your credit. The first drop occurs at 30 days, and then further drops at 30 and 60 days past the payment due date. After this stage the creditor may pass the debt onto a collection agency if payment has not been received.
Once the creditor writes the debt off as defaulted, it will result in a significant hit to your credit score. There is no consideration given for the size of the loan, so even a small payday loan can have a serious negative impact on the credit of the borrower once the loan is in default.
There are usually late fees associated with unsecured loans, due to the perceived higher risk of borrowers defaulting. These late fees are added to the principal of the loan, resulting in a much larger amount to pay back on top of what the borrower can already expect to pay in higher interest rates.
Financial penalties provide incentive for the borrower to bring payments up to date. However, if you cannot afford to make payments, an unsecured loan amount can get out of hand by the time the creditor writes it off as a defaulted loan.
With a secured loan, the creditor would move to seize collateral. However, as there is no collateral connected to an unsecured loan, the next step may include going to court to recover payment. There are circumstances where a judge will rule in favor of the borrower. However, these cases are rare.
If the judge rules in favor of the creditor and orders the unsecured loan must be repaid, a judgement will be entered, and the borrower may face having his/her wages garnished in order to ensure payments are made. You can continue to negotiate with a creditor if a wage garnishment has been awarded. A creditor who has a judgement may also use the judgement as a lien on other assets such as real estate or vehicles. A creditor who obtains a judgement is no longer an unsecured creditor.
You can have debt from unsecured loans discharged when you file for bankruptcy in Georgia. When filing for Chapter 7 bankruptcy, the borrower must meet the criteria of a means test. A Chapter 13 bankruptcy requires participation in credit counseling and sticking to a payment plan that will continue for 3-5 years. Before considering bankruptcy, it is important to consult with an experienced bankruptcy lawyer who can assess your finances.
If you would like to learn more about discharging debt from
an unsecured loan through bankruptcy, reach out to H. Lehman Franklin at
912-764-9616 or at email@example.com
today for an expert consultation.