How can a debtor determine whether a debt is secured?

The best and perhaps the easiest way to find out whether a debt is a secured debt is to review the documents signed at the time the debt was incurred. If the debt is secured, the documents will say so and will describe the creditor's security interest, which is usually in the property that is the subject of the financing.

Sometimes, however, the type of debt itself will suggest whether it is secured. The following types of debts are often secured debts, which means that if the debtor does not make payments on the debt when due, the creditor can take back the property that secures the debt, sell it, and apply the proceeds to pay off the debt. (If the sale price is not enough to cover the full amount owed, the debtor may still be liable for the remainder.)

Home mortgages. Companies financing home purchases almost always require a mortgage on the house. If the borrower defaults on the mortgage payments, the lender can force a foreclosure, in which case the house is sold and the proceeds are used to pay of the debt.

Motor-vehicle loans. When a person purchases a car on credit, the lender puts a lien on the car, which allows it to repossess the car if the borrower defaults (i.e., fails to make payments on time).

Store purchases. Although many consumers are unaware of this, when they charge something that they purchase at the local department store, the store may retain a security interest in the item purchased based on the agreement that the consumer signed when he or she first opened the account. As a result, if the purchaser fails to pay according to the credit-card agreement, the store can take back the merchandise.

Finance company loans. When a borrower obtains a loan from a finance company and is asked to list things that he or she owns, it is possible that the finance company will obtain a security interest in the items listed.