A secured debt is a loan in which the borrower pledges some asset (e.g. business asset or property) as collateral for the loan, which then becomes a secured debt owed to the creditor, who gives the loan. The debt is thus secured against the collateral — if the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally loaned to the borrower, for example, foreclosure of a home or seizure of assets. From the creditor’s perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount.

In finance, unsecured debt refers to any type of debt or general obligation that is not protected by a guarantor, or collateralized by a lien on specific assets of the borrower, In the case of a bankruptcy or liquidation or failure to meet the terms for repayment.

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