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Simple English definitions for legal terms
partially secured debt
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A quick definition of partially secured debt:
A partially secured debt is when someone borrows money and uses something valuable as collateral, but the value of the collateral is less than the amount of money borrowed. For example, if someone borrows $1,000,000 to buy a house, but the house is only worth $750,000, then the debt is partially secured. This can be a problem if the borrower needs to file for bankruptcy because it can make it harder to reorganize their finances. When someone owes partially secured debt, they can only pay off the part of the debt that is not secured with property that doesn't have a lien on it.
A more thorough explanation:
A partially secured debt is a type of secured debt where the collateral used to secure the debt is worth less than the total amount owed. This is also known as undersecured debt. For example, if a person takes out a $1,000,000 mortgage on a home that is only worth $750,000, the debt is partially secured.
It is not usually a good idea for a business to seek partially secured or unsecured debt because it can make it harder to reorganize if they need to file for Chapter 11 bankruptcy.
When a creditor has a partially secured debt, they have a secured claim for the value of the collateral and an unsecured claim for the difference between the secured claim and the total debt. The debtor can only pay down the unsecured portion of the debt with property that is not used as collateral.
If a person owes more than the maximum limit of their security interest, any excess debt is not considered secured debt. This means that the total debt is partially secured.
For example, if a person has a car worth $10,000 and they take out a loan for $15,000, the debt is partially secured. The car is used as collateral, but it is not worth enough to cover the entire loan amount.