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  1. Bankruptcy Glossary
  2. Under Secured Claim

What is an Under Secured Claim?

If the asset or claim is greater than the amount of the collateral the claim is considered an under secured claim.

A secured claim is a claim which is secured by an asset which can be seized by the creditor if the debtor defaults on the debt payments. Secured claims are generally secured in the amount of the collateral. If the asset or claim is greater than the amount of the collateral the claim is considered an under secured claim and the realization of the collateral will not repay the full value of the debt. Bankruptcy repayment plans must repay the present value of a secured claim (remaining debt is paid as an unsecured claim). Creditors generally have the opportunity to review and approve the amount for debt repayment outlined in the debt repayment plan.

Under some conditions a bankruptcy repayment plan may be accepted over the objection of certain creditors. This type of treatment is called a "cramdown". If a cram down occurs, but the debtor does not meet the obligations of the repayment plan, the debt will not be discharged and creditors may have the right to begin to collect their security interest for the unpaid debts (circumstances allowing cram downs can vary).

The value of a claim can be determined in several ways including: 1) the amount of money the creditor could receive if they repossessed the collateral and sold it. This is also called the foreclosure value; 2) the amount of money it would cost for the debtor to purchase another similar asset. This is also called the replacement value; 3) the retail value of the claim.