Secured Transactions Borrowed Collateral Law and Legal Definition

Collateral is an asset that a borrower agrees to give up if he or she fails to repay a loan. Collateral that is pledged to secure a loan or debt is usually funds or personal property as distinguished from real property, but technically collateral can include real estate, as in a mortgage. Collateral also provides the secured party with the assurance that if the debtor should go bankrupt he or she may be able to recover the value of the loan by taking possession of the specified collateral instead of receiving only a portion of the borrowers property after it is divided among all creditors.