Secured creditors hold registered priority claims over specific collateral pledged by debtors against loans in case of default.
Key Features:
- Lien placed on asset provides preferential right to proceeds upon sale
- Monitor collateral value relative to liabilities through financial reporting
- May seize and liquidate collateral privately if repayment delinquencies arise
Example:
A bank retained secured status over factory equipment after the equipment manufacturer entered insolvency proceedings.
Takeaways:
Security reduces credit risk through first dibs on pledged repayment sources. Complex regulations balance credit access against fairness in bankruptcy. Secured debt commands lower interest rates than unsecured loans benefiting borrowers.