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  1. Bankruptcy Glossary
  2. Secured Creditor

What is a Secured Creditor?

(See also Creditor) Creditors who make secured loans are secured creditors. Secured loans are loans which are secured by an asset (car or house) or collateral. If the borrower fails to make loan payments or defaults on the secured loan the lender can take possession of the asset and sell the asset in hopes of regaining the amount originally loaned.

In a bankruptcy proceeding creditors who file a Proof of Claim have a right to debt repayment. Bankruptcy laws outline the court-ordered remedy for each creditor and determine what order they will be paid. In a bankruptcy proceeding, the secured creditors get paid before unsecured creditors and will receive the debt amount or the amount of the collateral (or the lesser of the two). Under Chapter 7 Bankruptcy if the debtor has secured debt they have three options 1) redemption (offering to provide secured collateral for the amount of the secured piece of the loan); 2) reaffirming the debt (agreeing to repay either all or a portion of the debt which would have been discharged); 3) surrendering the asset which has collateralized the debt. Under Chapter 13 Bankruptcy the debtor with secured debt may 1) repay the debt to the creditor as part of the Chapter 13 Bankruptcy reorganization plan; 2) repay the debt to the creditor apart from the Chapter 13 Bankruptcy reorganization plan; 3) return the property which secured the debt.

All creditors have the following rights

  • All creditors share in payments made by the bankruptcy estate in amounts equal to other payments of the same priority level.
  • All creditors have the right to be heard by the bankruptcy court with regards to the issues of liquidation of assets and the debt repayment schedule.
  • All creditors have the right to challenge a discharge for a particular debt.