| Insolvency |
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_(style_of)_-_A_Hand_Holding_an_Empty_Purse%2c_The_Emblem_of%2c_%25E2%2580%2598No_suffering_can_compare%2527_(with_that_of_the_bankrupt_spendthrift)_-_1298194_-_National_Trust.jpg) |
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Anunsecured creditor is acreditor other than apreferential creditor that does not have the benefit of anysecurity interests in the assets of thedebtor.[1]
In the event of thebankruptcy of the debtor, the unsecured creditors usually obtain apari passu distribution out of the assets of the insolvent company on a liquidation in accordance with the size of their debt after thesecured creditors have enforced theirsecurity and the preferential creditors have exhausted their claims.
Although in aliquidation the unsecured creditors will usually realize the smallest proportion of their claims, in some legal systems, unsecured creditors who are also indebted to the insolvent debtor can (and in some jurisdictions, must)set off the debts, putting the unsecured creditor with a matured liability to the debtor in a pre-preferential position.