Secured Claims

Secured claims are debts backed by specific assets pledged as collateral. In case a borrower defaults, the creditor has the right to seize that asset to recover their money. Examples include mortgages, where the home serves as collateral, and car loans, where the vehicle is at risk. This gives secured creditors a stronger position during bankruptcy or liquidation because they can often reclaim their collateral instead of relying solely on the borrower’s ability to repay. Essentially, secured claims provide creditors with a safety net, ensuring they have a tangible means to recover their investments.