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What is secured debt? Why are secured creditors treated differently from unsecured creditors?

April 26, 2017Creditors secured secured debt treated unsecured

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What is secured debt? Why are secured creditors treated differently from unsecured creditors?

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Secured debt is debt where a creditor has “collateral”, such as a house, a car, or money in a bank. If the debtor fails to pay the debt, the creditor can take, or foreclose on, the collateral. Creditors with secured debt get preferential treatment in a bankruptcy. In many cases, they are allowed to be paid in full, and in others they are allowed to be paid in full, up to the value of their collateral.