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LSDefine
Simple English definitions for legal terms
secured claim
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A quick definition of secured claim:
A secured claim is when someone owes money to another person or company, but they have given something valuable as a guarantee that they will pay back the money. This is called collateral. For example, if someone borrows money to buy a car, the car is the collateral. If they don't pay back the money, the lender can take the car to get their money back. This is called a secured transaction, and it is governed by a law called Article 9 of the UCC.
A more thorough explanation:
A secured claim is a type of claim in which the creditor has a right to take possession of specific property if the debtor fails to pay back the debt. This property is called collateral and is used to guarantee payment of the debt.
For example, if a person takes out a car loan, the car serves as collateral for the loan. If the person fails to make payments, the lender can repossess the car to recover the debt.
Another example is a mortgage. The house serves as collateral for the loan. If the borrower fails to make payments, the lender can foreclose on the house to recover the debt.
Secured claims are important because they give the creditor a higher chance of recovering the debt if the debtor defaults. However, they also require the debtor to put up collateral, which can be a risk if they are unable to make payments.