Secured vs. Unsecured Claims

Secured claims and unsecured claims relate to debts. A secured claim is backed by collateral, such as a house or car, meaning the lender has a legal right to that asset if the borrower defaults. For example, if you take out a mortgage and fail to pay, the bank can foreclose on your home. Conversely, an unsecured claim has no collateral backing it, like credit card debt or medical bills. If you don’t pay, creditors can take legal action but cannot claim specific assets. In bankruptcy, secured claims typically get priority over unsecured claims for repayment.