Also known as: unsecured debts · unsecured obligation
Written by attorneys · grounded in primary & secondary sources — see below
An obligation to pay a sum of money that lacks backing by a security interest in specific property of the debtor.
Ulysses Ulrich paid the full amount of a supplier invoice that his company had incurred on open account terms. Because the invoice carried no collateral, the supplier held only an unsecured debt. After the payment Ulysses sought to step into the supplier's position against the company and its junior creditors.
Union Steel owed approximately four hundred thousand dollars on trade payables with no collateral. When the bank called its loans, company counsel proposed granting the bank a security interest in inventory and equipment. The proposal would have converted the existing unsecured debt into secured claims and reduced the recovery available to general creditors.
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An unsecured debt is an obligation to pay that is not backed by any interest in specific property. A secured debt, by contrast, gives the creditor the right to obtain and sell designated collateral to satisfy the obligation.
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When a defendant has mounting unsecured debts and other signs of financial distress, a money judgment may prove uncollectible. Courts therefore treat that risk as a factor supporting equitable relief such as an injunction.
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Yes. Subrogation may arise when a payor discharges an unsecured obligation under circumstances that would make it unjust to deny the payor a right of recovery against the original debtor.
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All property transferred by the decedent in a manner void or voidable as against creditors is liable for payment of unsecured debts, and the personal representative holds the exclusive right to recover such property.
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