Collateral (Bankruptcy) Law and Legal Definition

Collateral as used in bankruptcy laws refer to a property which is subject to a lien. A creditor who has rights in collateral is a secured creditor. Bankruptcy Code provides additional protection for claims secured by collateral. The measure of the secured claim is the value of the collateral available to secure the claim. However, there can be liens on property that is subject to a senior lien or liens such that the security available to pay the claim is really without value to the junior creditor. The general rule with respect to liens is ‘First in time, first in right.