Definitions and Terminology
Unsecured Creditor
Pre-Bankruptcy Articles - Definitions and Terminology
Written by Rohan Lamprecht   

An unsecured creditor is a creditor who does not have any form of security for the repayment of his/her claim as opposed to a secured creditor. An unsecured creditor does not receive any preference in terms of law, as opposed to a preferential creditor. Unsecured creditors and which does not have the benefit of any security interests in the assets of the debtor.

In the event of the bankruptcy of the debtor, the secured creditors will firstly received payment of their secured claims, limited to the realisation value of their security, then the preferential creditors' claims will be settled in full, where after the unsecured creditors will receive a pro-rata dividend in accordance with the size of their claims, from the remaining funds left in the estate (if any).

Unsecured creditors will almost always receive the smallest settlement of their claims.