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Simple English definitions for legal terms
undersecured debt
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A quick definition of undersecured debt:
An undersecured debt is when someone borrows money and puts something valuable up as collateral, but the value of that collateral is less than the amount of money they borrowed. This means that if they can't pay back the loan, the lender might not be able to get all their money back by selling the collateral. For example, if someone borrows $1,000,000 but puts up a house that's only worth $800,000 as collateral, the loan is undersecured.
A more thorough explanation:
An undersecured debt is a type of debt that is secured by collateral, but the value of the collateral is less than the total amount of the debt. This means that the creditor may not be able to recover the full amount of the debt if the debtor defaults on the loan.
For example, let's say that a person takes out a loan for $100,000 to buy a car. The car is used as collateral for the loan, but it is only worth $80,000. This means that the loan is undersecured, because the value of the collateral is less than the total amount of the debt.
Another example of undersecured debt is a mortgage on a house. If the value of the house decreases over time, the mortgage may become undersecured, because the value of the collateral (the house) is less than the total amount of the debt (the mortgage).