Unsecured Corporate Debt Holders and Notes

Definition

Bonds, notes, or debentures backed only by the issuer's general promise to pay, with no lien on specific property. In bankruptcy, a creditor's claim is secured only up to the value of its collateral^[1], and in a liquidation general unsecured claims are paid from the estate only after claims with statutory priority^[2]; publicly offered issues are generally issued under an indenture qualified under the Trust Indenture Act of 1939, which protects each holder's right to receive and sue for principal and interest when due^[3].

Federal law

A market and contract term. No Act of Congress defines it; the federal laws below apply as described.

1. Bankruptcy Reform Act of 1978, Pub. L. 95-598, § 101 (enacting 11 U.S.C. § 506), 92 Stat. 2549. Defines when a claim is secured and treats the undersecured remainder as unsecured (11 U.S.C. § 506(a)). Official text: govinfo.gov, U.S. Government Publishing Office.
2. Bankruptcy Reform Act of 1978, Pub. L. 95-598, § 101 (enacting 11 U.S.C. § 726), 92 Stat. 2549. Sets the order of distribution in a chapter 7 liquidation: priority claims first, then general unsecured claims (11 U.S.C. § 726(a)). Official text: govinfo.gov, U.S. Government Publishing Office.
3. Trust Indenture Act of 1939, Act of Aug. 3, 1939, ch. 411, § 316(b), 53 Stat. 1149 (15 U.S.C. § 77ppp(b)). Requires qualified indentures for covered public debt offerings and protects each holder's right to payment of principal and interest (15 U.S.C. § 77ppp(b)). Official text: govinfo.gov, U.S. Government Publishing Office.