What is the difference between a fully secured creditor and an undersecured creditor?
A fully secured creditor is the holder of a claim that is secured by property of a value that equals or exceeds the amount of the claim. An undersecured creditor is the holder of a claim that is secured by property of a value that is less that the amount of the claim. Suppose, for example, that the debtor has a truck valued at $10,000 that is subject to a $7,000 first mortgage held by Bank A and a $5,000 second mortgage held by Bank B. Because its $7,000 claim is secured by property calculated at $10,000, Bank A’s claim is fully secured. Bank B’s $5,000 claim is undersecured because it is secured only by an interest in property valued at $3,000 (the $10,000 value of the truck less the $7,000 first mortgage lien against it). An undersecured creditor is treated as having two claims, one secured and the other unsecured. However, in a Chapter 11 case, an undersecured creditor may waive its unsecured claim and elect to have its claim treated as being fully secured by exercising what is call
