Markets · 6 pages · 12 min

How a secured creditor differs from an unsecured one

A secured creditor holds a lien on collateral, while an unsecured creditor holds a promise without that specific claim on property.

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From the opening

A secured creditor holds a lien on specified property and can look to that collateral for payment. An unsecured creditor holds the borrower's promise without that specific lien, and shares with other general claimants in value left after secured claims take their collateral. The opening covers a lien identifies the collateral, unsecured claims share the remainder, and a shortfall becomes unsecured.

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Inside

A lien identifies the collateral
Unsecured claims share the remainder
A shortfall becomes unsecured
A guarantee is not a lien
Where the idea stops applying
A distinction worth keeping

Sources

Security interest and collateral
Unsecured deficiency claim

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How a secured creditor differs from an unsecured one

From the opening

Inside

Sources

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