Secured Debt and Unsecured Debt

A secured debt is one in which the creditor owns a stake in the property or any other holding of the debtor. The loan is made secure due to the fact that the creditor in case of default can take away the item that has been declared as collateral by the debtor. This collateral can either be the actual item for which the loan was taken, or any other property as decided upon at the time of the loan agreement. Inability to pay back the loan results in confiscation and transfer of possession of the collateral. In certain cases the debtor may still be held responsible if the collateral fails to fulfill the value of the original loan amount.

Some common examples of secured debt include mortgages, auto and other electronic item loans, bank loans e. t. c. (Richard, 2000) On the other hand unsecured debts are those for which there is no collateral. This means that if one default on the payments then there will be no tangible property for the creditor to lay a claim to. Unsecured debt is usually given on the promise of the debtor to repay the debt. Even though inability to repay the loan can result in legal action but no direct possession of any personal property (of the debtor) is possible.

Usually the lender and receiver try to work out a reasonable out-of-court settlement in case of non-payment. Common examples of unsecured debt include student loans, credit card debt, personal loans, and medical bills e. t. c (Pauline, 2006) So, in this case if the company is entering into an agreement with the bank, then the loan will probably be secure, and as mentioned earlier in the case of default the bank depending on the loan agreement will either confiscate the items (the computers) for which the loan was secured or if the company has pledged any other property then it will be confiscated.