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UCC & Corporate Due Diligence

Resource Guide for Legal and Financial Professionals

Secured Creditors and Unsecured Creditors: What’s the Difference?

UCC, Due Diligence

There are secured creditors and unsecured creditors. But what is the difference between secured creditors and unsecured creditors?

Secured Creditors

Secured Creditors are creditors that hold a lien on its debtor’s property, whether that property is real property or personal property. The lien gives the secured creditor an interest in its debtor’s property that provides for the property to be sold to satisfy the debt in cases of default. The secured creditor’s lien can be voluntary, like with a bank or other asset-based lender, or involuntary, like a tax lien.

Unsecured Creditors

Unsecured Creditors, like credit card issuers, suppliers, and some cash advance companies (although this is changing), do not hold a lien on its debtor’s property to assure payment of the debt if there is a default.

The secured creditor holds priority on debt collection from the property on which it holds a lien. The unsecured creditor gets no such protection; its best method of repayment from its debtor is voluntary repayment. Otherwise, short of bankruptcy proceedings, the unsecured creditor must sue and win a judgment to get repaid on a defaulted debt.

Preferred Creditors

There are also Preferred Creditors, typically employees of the debtor company in bankruptcy, who are entitled to wages, commissions, and other items. The unsecured creditor ranks after secured and preferred creditors in bankruptcy situations.

There you have it, the difference between secured creditors and unsecured creditors. If you are a secured creditor in need of assistance to file your liens, please call us at 800.406.1577.

Additional Resources

  • UCC Financing Statements in 3 Easy Pieces
  • Basics of the Uniform Commercial Code and Article 9