When collecting a debt that is owed to you or your company, there’s a ton of jargon through which one must wade in order to reach the other side that is sweet, sweet clarity. (cool metaphor, right?) So today, we thought we’d ask Dean Sperling, the man who is dedicated to getting debt situations resolved with your best interests in mind, and sleeps with a legal encyclopedia under his pillow, the key differences between secured and unsecured creditors and why it’s important to your ability to collect that debt.
Dean says, “Unsecured creditors lack any recourse to property if there is non-payment of their debt. A loan whereby someone simply provides another with money and receives a note is, essentially, receiving an IOU.”
He continues, “A secured creditor, who has proper paperwork giving a lien on real property, equipment or a bank account, has something to look towards for payment should there be no payment made. Being secured means following the required steps to “perfect” your claim against that property and a search should be done to see what position you are in as to that property. It is, assuming the paperwork is properly prepared, first in time first in right. You then have a right against all other creditors to seek payment from that property….even against a bankruptcy trustee or debtor in possession.
So why is this important? Because Dean reminds us that, “as an unsecured creditor in a bankruptcy for instance, you are last in line for any potential payments.” And that is no bueno, friends.