Debt is a loan or an agreement or a promise made to repay a loan over a period. The debt usually has two components, one is principal and the other one is interest. Interest-free loans are generally not considered fair and hence, the person receiving interest-free loans must include the potential fair interest to be paid as income on his/her federal tax return. The other important aspect of debt is the way it is paid out. Debt can have different arrangements for repayment, the most common one is to repay the debt on a periodic basis (usually monthly) in the form of an installment that includes both principal and interest.
There can be other arrangements for how the debt can be repaid. A lender might seek only interest payments periodically and a lumpsum principal settlement once the tenure is completed. The interest rate offered by the lender is directly proportional to the type of payment arrangements and the risk associated with the lender. The interest rate can be favorable for the borrower in case the loan facilitates an asset backup or if the borrower has great financial stability and credit history. Learn what else impacts interest rate and loan terms on https://www.recoverylawgroup.com/bankruptcy/.
Secured and unsecured debt
Debt can be two types; these can be secured or unsecured. Secured debts have an asset backup or a lien, which grants the lender an option to sell the borrower’s asset to recover the debts in case the borrower defaults. When the asset has a lien, it cannot be sold or liquidated fully or partially. Unsecured debts are debts offered by credit card companies to the borrower based on the credit score and income. These do not have any asset backing and are the first form of debt that usually are discharged in case of bankruptcy.
Bankruptcy and debt
Debt is the major trauma causing word in bankruptcy. An individual due to financial mismanagement or unavoidable circumstances might be in a debt trap and bankruptcy might be the only way out. Bankruptcy is the ultimate shield against debt, which based on the circumstances can help discharge almost all unsecured debts. If you need professional guidance or help on debt management or bankruptcy concerns, do not hesitate to reach out world-class attorneys from Los Angeles & Dallas, TX at 888-297-6203.