Also known as: unsecured debt · unsecured obligation · unsecured claim
Written by attorneys · grounded in primary & secondary sources — see below
A debt obligation that lacks any collateral or lien securing its repayment. The creditor holds only a personal claim against the debtor and must pursue collection through ordinary judicial proceedings or bankruptcy processes rather than foreclosure against specific property.
Ulysses paid the full balance of an unsecured trade debt that Dusk Fabrication owed to a supplier. Because the payment discharged an obligation of another under circumstances that would otherwise produce an unearned windfall, Ulysses sought to step into the supplier's position by subrogation. The court recognized the claim on the unsecured debt itself even though no mortgage was involved.
Urban Utley demanded early repayment of a personal loan he had extended to Ugo Ucelli. Because the loan documents contained no restriction on prepayment and the debt was unsecured, Ugo tendered the full amount before maturity. The lender had no right to refuse the tender under the perfect-tender-in-time rule that applies only to mortgages.
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An unsecured debt gives the creditor no claim to foreclosure surplus. The surplus is first applied to junior liens that were extinguished by the sale. Only after all liens are satisfied does any remainder reach the mortgagor. An unsecured creditor must pursue the debtor personally or in bankruptcy rather than claiming the surplus.
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Yes. Subrogation is available when one party discharges an unsecured obligation of another under circumstances that would otherwise create an unjust windfall. The payor steps into the original creditor's position on the personal claim even though no mortgage secures the debt.
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The Restatement section on prepayment applies only to obligations secured exclusively by real-estate mortgages. It expressly takes no position on unsecured debts. Traditional common-law rules or other statutes may govern prepayment rights for unsecured obligations.
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All property the decedent transferred by any means that is void or voidable as against creditors is liable for unsecured debts. The personal representative holds the exclusive right to recover such property to the extent necessary to pay those debts, subject to prior liens.
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