Undersecured Claims

Undersecured claims refer to debts where the value of the collateral securing the loan is less than the total amount owed. For example, if you borrow $10,000 and use a car worth only $7,000 as collateral, your claim is undersecured by $3,000. In a bankruptcy or liquidation, undersecured creditors may have limited recovery since they can only claim the value of the collateral, potentially losing the uncollateralized portion of their debt. Understanding undersecured claims helps both creditors and debtors navigate their rights and obligations in financial distress situations.