What are unsecured debts and how does an unsecured creditor collect on a debt?

An unsecured debt is a debt where there is no collateral. Unsecured debts include medical bills, credit cards, department store cards, personal loans, collection accounts, student loans, amounts remaining after foreclosure or repossession, and bounced checks. When there is no collateral securing the debt, then the creditor has to either pursue repayment directly from the borrower by relentlessly calling, writing letters, and pursuing other strategies to persuade the debtor to repay the debt.  Often, an unsecured creditor will resort to suing the debtor in court in order to obtain a court-ordered judgement for repayment.  There are a few creditors who will never compromise, but most will take a less ­than­ full payment as settlement ­in ­full in order to close a troublesome account rather than incur the cost of litigation or collection. (Utility companies, however, rarely settle for less than the full balance.)

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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