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Patrick H.
Patrick H., Lawyer
Category: Australia Law
Satisfied Customers: 5422
Experience:  Dip Law LPAB - Sydney based lawyer
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I have an unsecured loan to the value of approx. 108K with

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I have an unsecured loan to the value of approx. 108K with the Commonwealth Bank. It was a loan taken out to invest in a scheme that failed in the first 12 months, its now worth nothing and subject to a class action which I do no have enough money to join. Given that its unsecured, What happens if a just stop paying the repayments?
Unfortunately although unsecured loans do not attach to specific assets, the creditor can still take recovery action to force you to sell other assets if default.

So if you cease payment of such loans the bank can issue you with a bankruptcy notice which will then leave you with the option of paying the outstanding amount on the debt or be bankrupted, whereupon a trustee can seize all your assets and accounts to distribute to creditors.

For your information, the difference between a secured and unsecured loan is just that with a secured loan that loan is always entitled to claim against the securing asset, regardless of other creditors claims, whereas an unsecured loan has no greater claim to a defaulting debtor's assets than any other creditor. So for example, where a bank loan is secured by a property (such as with a mortgage) if the borrower goes broke, the bank can sell the house and recover the loan against the house sale (which is usually enough to cover the whole loan), even if that means other unsecured creditors are unable to recover anything. Whereas if the banks loan were unsecured they would only recover a share of the available assets in equal proportion to the other creditors loans.

Accordingly, the fact the loan is unsecured is not a reason to cease repaying the debt.

I appreciate this may not be the answer you were hoping for, however, it does reflect the legal reality of your situation and I trust assists your understanding as to how to proceed.

If there is further information or follow up questions you require then please ask and I will try to assist you further, otherwise please rate my answer so that I can be paid by the website operator for my time.

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Thank you and good luck.

Patrick H. and other Australia Law Specialists are ready to help you
Customer: replied 4 years ago.

HI Patrick.

Thanks for your advice. Yep.. dead right.. not the answer I was after but kind of sort had the feeling that this was exactly the situation. Its not ideal but life's like that I guess. Live and learn.

Have a great weekend. :)