At the outset, it is important to distinguish between two main classes of creditors, to whom debts may be in default. The distinction directly affects the outcome of a debt collection matter.

A secured loan is one that requires the debtor to pledge something of value as collateral for the loan. Home mortgages and auto loans are common examples affecting most consumers. In each of these two examples, the purchased house or the purchased automobile becomes the collateral for the loan, and the lender has a “security interest” in the collateral/property that secures the debt. When a debtor defaults in payments, the “secured creditor” can simply repossess the car or house. (A foreclosure on a house is a form of repossession by the lender, but federal and state laws impose additional notice requirements upon defaulting debtors. However, in the classic “land contract” sale of property at common law, debtors who defaulted in payments generally lost the property and all equity therein.)

On the other hand, most credit card debts, revolving credit at retail stores, student loans, etc., are unsecured debts. The “general” (unsecured) creditors must file suit and win a judgment against the debtor before they can seize or sell any assets or belongings of a debtor to satisfy the debt. Once the general creditor has obtained a judgment against a defaulting debtor, the general creditor stands as a secured creditor who may then move on to levy liens or writs of execution against a debtor’s assets and personal property. (See “Formal Proceedings” below.)