Unsecured Creditor

Category: legal

A creditor who has extended credit without requiring any specific collateral to guarantee the loan.

Unsecured creditors rely purely on a promise to pay. This includes credit card companies, medical providers, and standard B2B vendors. In a bankruptcy, they are near the bottom of the priority chain and frequently take massive losses on the money they are owed.

Common Examples

• The software vendor was classified as a general unsecured creditor, leaving them with very little leverage in the restructuring negotiations.
• Most unsecured creditors will sell their bankruptcy claims to distressed-debt hedge funds just to recover a fraction of the cash immediately.