How Debt Works Flashcards
What is an unsecured debt?
An unsecured debt is “secured” only by the “credit” of the debtor.
What is a secured debt?
A secured debt is “secured” by an underlying asset.
What is a car loan secured by?
A car
What is a mortgage secured by?
A house
What does “default on a debt” mean?
Default is what happens when a debtor fails to repay a debt.
What 2 things happen when a debtor defaults on an unsecured debt?
- missed or late payments are noted on the debtor’s credit report, which hurts their credit rating
- the creditor can try to sue the debtor to get his money back
What 3 things happen when a debtor defaults on a car loan?
- missed or late payments are noted on the debtor’s credit report, which hurts their credit rating
- the creditor can repossess the car
- the creditor can try to sue the debtor to get their money back
What is a “deficiency notice”?
That’s the amount you owe the car lender after your car gets repo’ed
How do you calculate the amount of a deficiency notice for a car?
It’s the amount of payments the debtor has left on the car loan or lease PLUS any storage or towing fees MINUS the amount the car gets sold for at a private auction
What’s a “debtor”?
A debtor is a person who has borrowed money
What’s a “creditor”?
A creditor is a person or company from whom a debtor has borrowed money
What 3 things happen when a debtor defaults on a mortgage?
- missed or late payments are noted on the debtor’s credit report, which hurts their credit rating
- the creditor can “foreclose” the house to force the house to be sold
3A. if the foreclosure goes through, any excess money is returned to the debtor, OR
3B. if the creditor is still owed money, the creditor can try to sue the debtor to get their money back
