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Undersecured Claim

Definition - What does Undersecured Claim mean?

An undersecured claim is a debt that has a value greater than the item that was bought with the debt, and which acts as security for the debt. This can happen in situations where the value of the item purchased with the loan goes down upon use, or goes down for other reasons.

Justipedia explains Undersecured Claim

An example of an undersecured claim would be a man who borrows $20,000 to purchase a brand new power boat. After the man uses the power boat for a month, it is no longer worth $20,000 because it is not considered to be brand new anymore. The fact that it is used will drop the price. The man could not repay his entire debt by exchanging the boat in repayment. Therefore, his debt would now be an undersecured claim.

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