Secured Creditor
What does "Secured Creditor" mean in law?
A secured creditor holds a claim against the debtor that is backed by a lien on or security interest in specific property of the estate, as recognized under 11 U.S.C. section 506. The secured creditor's claim is bifurcated into a secured portion equal to the value of the collateral and an unsecured deficiency claim for any amount exceeding that value. Secured creditors enjoy significant protections in bankruptcy, including the right to adequate protection of their collateral under section 361, relief from the automatic stay if their interest is not adequately protected, and favorable treatment in reorganization plans. The priority and validity of security interests are generally determined by applicable non-bankruptcy law, typically Article 9 of the Uniform Commercial Code for personal property.
Definition
A secured creditor holds a claim against the debtor that is backed by a lien on or security interest in specific property of the estate, as recognized under 11 U.S.C. section 506. The secured creditor's claim is bifurcated into a secured portion equal to the value of the collateral and an unsecured deficiency claim for any amount exceeding that value. Secured creditors enjoy significant protections in bankruptcy, including the right to adequate protection of their collateral under section 361, relief from the automatic stay if their interest is not adequately protected, and favorable treatment in reorganization plans. The priority and validity of security interests are generally determined by applicable non-bankruptcy law, typically Article 9 of the Uniform Commercial Code for personal property.
Example
A bank holding a mortgage on the debtor's factory was treated as a secured creditor to the extent of the factory's $2 million appraised value, while the remaining $500,000 of the loan balance was classified as an unsecured deficiency claim.