Explain the difference between secured and unsecured creditors. What is the likelihood of financial recovery for each?
What will be an ideal response?
A secured creditor lends, based on collateral, an item of value that the creditor can take if the debtor defaults on the loan. An unsecured creditor loans without collateral and must generally file a lawsuit in order to recover what he is owed if the debtor defaults. Once a bankruptcy is filed, however, a secured creditor who has perfected her interest in the collateral will recover the debt, if assets are available, before any unsecured creditors. An unsecured creditor does not have a high likelihood of being repaid if the debtor defaults because all priority debts are paid first, followed by secured debts and then finally unsecured debts. In most cases unsecured debtors recover little or nothing.
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Indicate whether the statement is true or false
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