What Is Unsecured Debt?

What Is Unsecured Debt?

Unsecured debt is money you owe that isn’t tied to any specific property. That means if you don’t pay, the creditor can’t automatically take something you own to get their money back.

🏦 Banks, lenders, and credit card companies that loan you this kind of money are called unsecured creditors.

Because unsecured debts aren’t backed by property, they’re often easier to erase (or discharge) if you file for bankruptcy.

If you’re struggling to stay afloat, you may be able to file bankruptcy for free without a lawyer using Upsolve’s online filing tool. Upsolve is a nonprofit that helps eligible folks prepare their bankruptcy forms and start fresh — at no cost. (Learn more about Upsolve.)

Common Types of Unsecured Debts

The most common types of unsecured debts are:

• Credit cards

• Personal loans

• Medical debt

• Old utility bills

• Old rent and lease payments

• Old cellphone bills

• Deficiency balances on auto loans after car repossession

• Child support

• Unsecured lines of credit

• Most tax debts

Student loans are also considered unsecured debts. But they work a little differently from other debts on this list. When you take out a student loan, you usually have to sign a document called a promissory note, which is a legal promise to repay the loan.

Even though student loans aren't tied to property like a house or car, they come with special rules that can make them harder to wipe out in bankruptcy. Still, you can discharge federal student loans if you meet certain requirements.

How Are Secured and Unsecured Debts Different

When you borrow money, the loan will either be secured or unsecured. The big difference is whether the loan is tied to something valuable you own, called collateral.

Secured Debts Are Tied to Property

Secured debts are backed by collateral. That means the lender has a legal right to take the property if you don’t pay.

Common examples of secured debts include:

• Car loans (the car is the collateral)

• Home loans or mortgages (the house or real estate is the collateral)

• Secured credit cards (the collateral is a cash deposit you make)

If you miss payments on a secured debt, the lender can repossess the car, foreclose on the home, or keep the money you put down.

💡 Because the lender has a way to recover their money, secured debts usually have lower interest rates.

Unsecured Debts Aren't Tied to Property

Unsecured debts don’t have any property backing them up. If you don’t pay, the creditor can't just take something from you. For example, if you fall behind on a credit card payment, the credit card company can't come and take the things you purchased with the card.

If you fall behind on unsecured debts, creditors will usually start by calling you and sending letters. If the debt isn’t paid, they can sue you. But they must win a court case and get a judgment before they can garnish your wages or freeze your bank account.

Because unsecured debts are riskier for lenders, they often come with higher interest rates than secured debts.

What To Do if You Have Too Much Unsecured Debt

Unsecured debt like credit cards, medical bills, and personal loans can add up quickly, especially when life throws unexpected expenses your way. If you're finding it hard to keep up with minimum payments or getting calls from debt collectors, you're not alone — you have options.

Here are ways to manage your debt, protect your income, and get a fresh start if you need one.

Get a Free Credit Counseling Session

One option many people explore is working with a nonprofit credit counseling agency. A credit counselor can help you review your full financial situation and walk you through your options. This could include:

• Simple budgeting to better manage your finances

• Setting up a debt management plan

• Negotiating a debt settlement agreement

• Consolidating your debts

• Filing bankruptcy

If you're not sure where to start, signing up for a free credit counseling session with an accredited nonprofit such as Cambridge Credit Counseling can be a great first step. Cambridge is a nonprofit with nationally certified credit counselors who can help create a personalized action plan for you.

Note that if you sign up with Cambridge via Upsolve, we earn a small commission.

Eliminating Unsecured Debts With Bankruptcy

One of the biggest benefits of filing bankruptcy is the chance to erase most unsecured debts. Once you meet all the requirements, the court issues a bankruptcy discharge, which officially wipes out those debts.

In a Chapter 7 bankruptcy, most people receive their discharge about 3–4 months after they file their case.

Unsecured Debts That Usually Get Discharged

Most unsecured debts are eliminated in bankruptcy. This includes things like:

• Credit card balances

• Personal loans

• Medical bills

• Old utility bills

• Some types of personal judgments

Once these debts are discharged, you no longer have any legal obligation to pay them.

Unsecured Debts That Might Not Be Discharged

Not all unsecured debts are wiped out in bankruptcy. You still need to list them on your bankruptcy forms, but some debts can't be discharged in Chapter 7 bankruptcy.

Here are a few of the most common examples:

Student Loans

Most student loans aren't automatically discharged in bankruptcy. You can only eliminate them if you file a separate lawsuit in your bankruptcy case, called an adversary proceeding. You also have to prove that paying them would cause undue hardship.

This process can be difficult, but some people qualify. Even if your student loans aren't discharged, wiping out other debts can make it easier to manage your student loan payments. You might also qualify for income-driven repayment plans or other federal relief options.

Recent Income Taxes

Some income tax debts can be discharged in bankruptcy, but only if they meet very specific rules. Usually, the tax debt must be at least three years old, and you must have filed your tax returns properly.

Figuring out whether your tax debt qualifies can get complicated. Many people choose to talk with a bankruptcy attorney if they owe a lot in taxes, just to make sure they’re filing at the right time. Upsolve can help connect you with a local attorney for a free bankruptcy consultation.

Domestic Support Obligations

Debts like child support and alimony can’t be wiped out in bankruptcy. Filing bankruptcy also doesn’t erase unpaid child support or alimony you already owe. These debts have special protection under the law and must be paid in full.

How Unsecured Debt Is Treated in Chapter 13 Bankruptcy

Unlike Chapter 7 bankruptcy, which wipes out most debts in just a few months, Chapter 13 takes a longer-term approach. Instead of erasing your debts right away, you commit to a repayment plan that lasts 3–5 years.

In a Chapter 13 bankruptcy, you propose a plan to repay some or all of your debts based on what you can afford. You’ll make one monthly payment to a bankruptcy trustee, who then distributes that money to your creditors.

Certain debts, like child support and recent taxes, must be paid in full during your plan. Others — like credit cards, medical bills, and personal loans — may only receive partial payments, or nothing at all.