What is the difference between secured and unsecured creditors?
In Louisiana, secured and unsecured creditors are terms used in business transaction law. A secured creditor is a creditor who has a claim on a specific asset owned by the debtor, such as a loan that is secured by a house or a car. The asset owned by the debtor is referred to as collateral. Unsecured creditors are creditors who do not have a specific claim on an asset owned by the debtor. An example of a secured transaction is if someone takes out an auto loan. The lender is a secured creditor because they have a claim on the vehicle purchased by the debtor. If the debtor fails to repay the loan, then the creditor can repossess the vehicle. Unsecured creditors do not have a specific claim on any asset owned by the debtor. Examples of unsecured creditors are credit card companies and utility companies. Secured creditors generally receive priority when it comes to repayment of debts in the event of a bankruptcy. That means if the debtor declares bankruptcy, the secured creditor has the right to be first in line for repayment. Unsecured creditors most often receive payment only after secured creditors are repaid in full. If there is not enough money to repay all creditors, unsecured creditors are likely to be repaid last or not at all.
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