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Unsecured Creditors in Bankruptcy
An unsecured creditor is a typically a company that extended open account credit terms to a company or individual that subsequently filed for bankruptcy protection. Unsecured debt involves liabilities for which the extension of credit on open account terms by a creditor was based solely on an evaluation of the debtor's ability to pay and was not supported by any form of collateral or security. An unsecured claim or debt is one for which a creditor holds no special assurance of payment such as a mortgage or lien.
In most industries, business to business sales are conducted on open account terms making most trade creditors general unsecured trade creditors.
Unsecured creditors should update their credit files regularly to determine which customers remain creditworthy, which accounts have experienced problems and need to be monitored more closely, and which customers represent an unacceptable credit risk necessitating a decision by the credit department to withdraw the customer's open account terms. In addition to routine monitoring, accounts that break payment commitments, take unsubstantiated deductions, or delay payment should be reviewed carefully to determine if the decision to offer open account credit terms to them remains appropriate.
Copyright by Michael C. Dennis. Mr. Dennis is a consultant and can be reached by email at mcdennis13@yahoo.com