In general, to “have debt” or to be “in debt” typically means that you owe another individual or entity something. In most cases, that “something” is usually money. For instance, if you are late on rent payments or are carrying a balance on your credit card, then this would constitute “having debt”.
The person who owes money to another individual or company is often referred to as the “borrower” or “debtor”. On the other hand, the party who is owed that money is called a “lender” or “borrower”, and is normally some kind of lending institution like a bank.
As mentioned, however, debt may also involve other assets, such as interests in real property, equipment or machinery for a business, and inventory. Thus, being “indebted” to someone can mean a lot of things. Accordingly, you should consider hiring a local bankruptcy or finance lawyer for further assistance with debt issues.
What Are Some Different Types of Debt?
Debt can be divided into two main categories: consumer debts and corporate debts. Many people are already familiar with the concept of consumer debt since it is also the most common type of debt out of the two. Consumer debt generally consists of personal debt as well as debts incurred when trying to pay off bills related to living expenses. Some typical examples of consumer debts include:
- Mortgage debts and housing loans: For the majority of people, mortgage debt accounts for the largest portion of debt that they owe. Many people are also still recovering from the housing crisis in 2008 and thus have been forced to take on debts that were well outside their budget plan.
- Student loan debt: Student loan debt is not far behind mortgage debt in terms of the amount of money still owed. This is especially true with the ongoing pandemic and lack of jobs. These debts can also be blamed on high interest rates, the housing crisis, little to no forms of relief, and the price of education. Additionally, educational debts unfortunately cannot be forgiven in bankruptcy, so they often accumulate over time.
- Credit card debt: Overspending and high interest rates can lead to crippling debt being owed to various credit card companies. For example, if a person cannot pay off their remaining balance, then over time, the interest rate can escalate what was once a minimal balance to a staggering amount.
- Bank loans and overdraft fees: Bank loans can be used for one-time expenditures, such as money to purchase a car or to make home renovations. Given the large sum of money that is provided to a consumer at one time, bank loans usually have repayment plans and thus these payments may extend over long periods of time.
The second type, corporate debts, refer to debts incurred by businesses. Some common examples of corporate debt may include:
- Syndicated debt: Syndicated debts occur when one or more lending institutions work together to provide the amount of a principal loan to a corporation, for a single large project, or to an independent government agency. These funds are often loaned out by several different banks, meaning they usually involve quite a bit of capital and thus can be difficult to pay off.
- Private debt: This may refer to debts that are owed to a single bank, other lending institutions, and/or a private investor or a similar private company. As such, private corporate debts can range from anywhere between a few thousand to millions of dollars.
- Public debt: Public debt, also known as government or public interest debt, is debt that is owed by a country to other lenders, such as to individuals, businesses, and even foreign governments. Some examples of public debt include bonds, loans from foreign countries, and Treasury Bills.
What Are the Legal Consequences of Being in Debt?
There are many legal consequences that one can face when they are in debt. The first step to figuring out what those consequences are is to determine whether the debt that is owed is secured or unsecured debt. Both corporate and consumer debts may be either secured or unsecured.
When a person or entity is on the hook for payments for secured debts, then this means that the creditor will be allowed to take back some of the debtor’s real or personal property if they have defaulted on their loan payments or a loan has reached default status. This just means that the debtor is unable to keep up or make payments to pay off the remaining amount of debt still owed.
For instance, if a debtor cannot make payments towards a loan they borrowed to purchase a car or a house, then a lender may be able to take back the car or put the house up for sale through foreclosure. Since the loan is directly tied to the car or a house in this scenario, those items can be used as collateral to pay off the remaining debt. In other words, the loan is “secured” to the car or house.
On the other hand, unsecured debt is not connected to any particular property and does not involve real or personal property being used as collateral or security on the loan. In this instance, a creditor will be prevented from reaching and using a debtor’s assets for payment on the loan.
Thus, in an unsecured debt situation, a creditor will usually have to resort to other means of debt collection, such as by hiring an independent collections agency or by filing a lawsuit in court. The most common example of unsecured debt is debt associated with a credit card.
What Laws Provide Protection from Creditors?
In general, laws that provide protection from creditors are known as “collection laws”. The primary source of debt collection law stems from a federal law called the Fair Debt Collection Practices Act (“FDCPA”). This law protects debtors from being harassed, threatened, or lied to by debt collection agencies. However, the FDCPA does not protect corporate debtors, only those with consumer debts.
Another federal law that protects against creditors is the Fair Credit Reporting Act (“FCRA”). Under the Act, a consumer may submit a complaint if they find an error in their credit report, such as if it states that they still owe money, but they have already paid off that debt. There are also several federal agencies that protect consumers from creditors like the Federal Trade Commission (“FTC”) and the Consumer Financial Protection Bureau (“CFPB”).
In addition, many states have enacted their own laws to protect individuals and businesses from creditors, as well as have created state agencies to ensure enforcement of these laws.
Do I Need a Lawyer for Help with Debt Issues?
Debt collection and bankruptcy proceedings are two very challenging fields of law. They often involve extremely detailed procedures and requirements that are governed by confusing federal and state laws. Therefore, it may be in your best interest to hire a local financial attorney if you are dealing with debt issues. This is especially true if those debt issues might lead to a lawsuit.
An attorney who has experience in handling debt-related matters will be able to assess your situation, can determine what steps you can take to relieve your debts, and can help you with any legal procedures you may need to follow to resolve your debt issue. Additionally, your lawyer can aid you in filing for bankruptcy and can provide representation during proceedings in bankruptcy court.