Secured Claim

A secured claim is a debt that is backed by specific collateral, such as property or assets. If the borrower defaults, the lender has the legal right to seize and sell the collateral to recover the owed amount. For example, a mortgage is a secured claim because the house serves as the collateral. Secured claims generally have priority over unsecured claims in bankruptcy or liquidation, meaning creditors with secured claims are more likely to recover their money. This arrangement reduces the lender's risk and often results in more favorable loan terms for the borrower.