undersecured debt

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An undersecured debt is a debt secured by collateral with a lower value than the total amount of the claim. From the debtor’s perspective, the obligation owed to the creditor has a higher value than the collateral given by the debtor to secure the creditor’s claim. From the creditor’s perspective, the debt would be undersecured because the value of the collateral that secures the creditor’s claim is less than the amount of the creditor’s claim.

For example, a USD 1.000.000 loan with a collateral asset valued at USD 800.000. 

[Last updated in September of 2021 by the Wex Definitions Team]