What is Senior Debt?

A senior debt is the primary debt paid off, in the case of bankruptcy. The debt is usually secured against an asset like a business or home and is typically a mortgage or car loan.

Examples of senior debt include:

  • Primary financing on a home, such as a mortgage loan or home equity line of credit
  • Primary financing on a vehicle, such as a car loan where the title is held by the lender.
  • A small business loan or small business expansion loan, where the business itself is used as collateral.

Most debtors have multiple levels of debt, including senior debt and subordinate debt. Subordinate debt is only paid off after all senior notes have been fulfilled in the case of bankruptcy. Examples of subordinate debt include:

  • Unsecured personal loans for individuals, such as recreational vehicle loans, cash loans or wedding loans.
  • Unsecured business loans such as mezzanine loans. Mezzanine loans are a specific type of subordinate loan that allows for equity in the company.