IVA Glossary
U
Unsecured Creditor
In its narrowest meaning, the term "unsecured creditor" refers to creditors who have extended credit and who do not hold any collateral security. This means that the credits given by them to debtors are not secured by any charge. The lack of security means that in case their debtors go bankrupt, unsecured creditors are paid only after all the secured creditors are paid up. After the secured creditors' claims have been satisfied, unsecured creditors are paid up on a pro-rata principle.
Being an unsecured creditor is riskier than being a secured one. The reason is that not requiring any collateral security implies that the lender has nothing to count on in case the borrower fails to meet his or her financial obligations, so becomes unable to repay the credit.
In a wider sense "unsecured creditors" are those (so-called "ordinary") creditors who do not have any preferential rights. Not having such rights implies that unsecured creditors rank after preferential as well as after secured creditors. It should also be known that unsecured creditors have equal rights among themselves. Good examples for unsecured creditors are debenture holders.
Being an unsecured creditor is riskier than being a secured one. The reason is that not requiring any collateral security implies that the lender has nothing to count on in case the borrower fails to meet his or her financial obligations, so becomes unable to repay the credit.
In a wider sense "unsecured creditors" are those (so-called "ordinary") creditors who do not have any preferential rights. Not having such rights implies that unsecured creditors rank after preferential as well as after secured creditors. It should also be known that unsecured creditors have equal rights among themselves. Good examples for unsecured creditors are debenture holders.
