Undersecured Debt Law and Legal Definition

Undersecured debt is generally a debt secured by property that is worth less than the amount of the debt, so that realization of the collateral does not fully satisfy the debt. Characterization of a debt as undersecured may have legal implications. For example, in a Chapter 11 bankruptcy, unmatured interest claims on unsecured or undersecured debt are not allowed subsequent to the filing of the bankruptcy petition.

Many creditors request and obtain reaffirmations for unsecured debt. According to the Creighton Bankruptcy Reaffirmation Project, 22% of reaffirmation agreements in their sample were for totally unsecured consumer debts, although more than half of the reaffirmations filed are for unsecured, nominally secured, or undersecured debt.