Dictionary

  • Unsecured creditor

    A creditor who has made a loan, or advanced goods, without obtaining any security over collateral (property to be forfeited upon default) from the debtor. In the event of debtor insolvency or bankruptcy, an unsecured creditor will have their unsecured debt repaid at a lower priority than a secured creditor.

    Practically, this often results in an insolvent or bankrupt’s assets being dissipated before the unsecured creditor can have their debt fully repaid, or repaid at all (i.e. the creditor gets nothing back).

    Unsecured creditors will usually charge high interest rates to compensate for the risk they are taking in issuing an unsecured loan. Common types of unsecured creditors include credit card companies, utilities, and landlords.

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