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. There are a few creditors who will never compromise, but sometimes creditors will settle unsecured debts for less than the total amount due. The typical reason most creditors will settle an unsecured debt is because they would have to incur sometimes substantial costs involved in suing the debtor for a judgment for repayment and still be left with a debtor who simply can not pay the judgment. When there is no collateral to repossess to satisfy the debt, the creditor is left with nothing. Many creditors will calculate how much it would cost to collect and estimate the amount they are likely to actually collect, and then make a decision about whether or not it is better to accept a reduced amount upfront.
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.