Ask Prof. Hayes: What is a secured creditor and why does it matter?

I have completed four classes of my bankruptcy class at the University of West Los Angeles School of Law so far this semester. This is a review of class three. It is designed for my students and therefore goes into some detail about how a lien is created on property and what the legal effect of the lien is on the estate and other creditors. It should be useful to new attorneys, new to bankruptcy or otherwise.

I have said many times (and say on this video) that secured creditors are the tail that wag the dog in bankruptcy. The secured creditor's right to seize specific property, sell it and take the proceeds does not go away in bankruptcy with only a few exceptions.

How a creditor becomes secured is very technical and the general rule is that unless the creditor follows all the rules exactly right, the creation of the lien on property fails and the creditor is unsecured. This is because the secured creditor generally has such a huge advantage over unsecured creditors.

For that reason, do not make any decisions relying on my comments. As I say in the video, I can explain the general rule of voluntary liens in two sentences. The general rule applies most of the time. I could also write 500 pages discussing the two rules and the various exceptions.

Let me know what you think. Leave comments below and I will try to answer them. My firm's website, www.rhmfirm.com.

JH