Collateral

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Used to secure a debt by requiring the borrower to pledge property as security for its repayment

When a loan is collateralized, the lender becomes a secured creditor of the borrower. Should the borrower default on the loan or file for bankruptcy, the lender is entitled to receive the debtor’s collateral in satisfaction of the debt.

Under the Uniform Commercial Code, collateral is considered a secured interest, and under Article 9, the secured creditor is entitled to preference as to all other unsecured creditors.

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