THE DEFINITION OF CREDITOR ~ SECURED CREDITORS AND UNSECURED CREDITORS. If you are going to file bankruptcy, you need to know the difference.
I was asked by someone the other day to explain the difference between secured and unsecured creditors so I thought I would answer it here too in case anyone has the same questions.
First of all, in case you haven't heard the word, the definition of a debtor is simply a person who is in debt or under financial obligation to another person or company. If you are filing for bankruptcy, the debtor is you.
The definition of a secured creditor(s) is a lender, individual or otherwise, who holds a legally enforceable claim to a debtor's asset. Examples of this would be a mortgage, lien, or other collateral.
Secured creditors may legally seize or repossess property when loans are in default. In bankruptcy, secured creditor debts must be satisfied before any unsecured creditors.
The definition of an unsecured creditor(s) is a lender who extended credit to a debtor without any collateral. In bankruptcy, unsecured creditors are paid only after secured creditors are satisfied. Unsecured creditors are often not paid anything if the debtor qualifies to have all debts discharged in a chapter 7 bankruptcy.
Because there is no collateral required, unsecured debt usually carries with it a higher interest rate. However, in the first years following bankruptcy, it may be tough to qualify for any type of unsecured credit. Successful Filers often opt to get a secured credit card, also known as a bank secured card.
A secured credit card usually requires a deposit that will be matched by a line of credit. Many filers use these bank secured cards to help them re-establish credit after bankruptcy.
So there you have the definition of a creditor and then some. As always, consult with your attorney about your particular situation.
Good luck to all,