Definitions

unsecured

Unsecured debt

In finance, unsecured debt refers to any type of debt or general obligation that is not collateralized by a lien on specific assets of the borrower in a bankruptcy or liquidation.

In the event of the bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the borrower after the specific pledged assets have been assigned to the secured creditors.

Although in a liquidation the unsecured creditors will usually realize a smaller proportion of their claims than secured creditors.

In some legal systems, unsecured creditors who are also indebted to the insolvent debtor are able (and in some jurisdictions, must) set-off the debts, which actually puts the unsecured creditor with a matured liability to the debtor in a pre-preferential position.

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