Usually, when individuals file for bankruptcy, they owe a significant amount of debt to their creditors. This outstanding balance is the claim that creditors assert as their own. However, this claim is different from a secured claim. The latter is a debt secured or guaranteed by a property. While paying a debt through bankruptcy, the court sends a notice informing the creditors of a deadline by which they need to submit a ‘proof of claim’ form. This form describes the type of debt (what it is for), the amount owed by the bankruptcy filer, whether the debt is a priority debt or not, and whether the claim is a secured or an unsecured one. Failure to submit the ‘proof of claim’ form on time will result in forfeiting the claim to receive any amount through repayment in case of a bankruptcy proceeding.
If the debt is covered by collateral, it is a secured debt. In this case, the creditor could sell the particular asset to recover their amount if the borrower defaulted on the contract. The most common types of secured debts are car loans and mortgages, which are covered by the automobile and house, respectively. The creditor has an ownership interest called a lien until the borrower repays the loan. Suppose the borrower is not current on their loan payments. In that case, the creditor can foreclose on the property or repossess the vehicle. In case of unsecured debt like credit card bills, personal loans, medical bills, etc., the creditor does not have the right to take the property if the borrower has not repaid the amount as per the terms.