C is corrent. A secured creditor has a security interest in the personal property of the debtor which is acting as collateral for the debt. In a bankruptcy proceeding, there is an order of priorities concerning distribution of the debtor’s estate. Secured creditors are given first priority in the sense that property subject to a valid security interest is not part of the estate for distribution purposes but belongs to the secured creditor to the extent of his security interest. The secured party can either take the property or its cash equivalent. If the value of the property is insufficient to satisfy the claim, the secured creditor becomes a general creditor for the balance.
A is incorrect because although the secured party does have a claim to the balance, the party’s status will be that of an unsecured general creditor. The creditor does not retain the status of a secured party for the balance.
B is incorrect because the secured party will become a general creditor for the remaining balance. Thus, the creditor will share in all remaining assets with the other general creditors and not wait for them to be paid first.
D is incorrect because if the value of the collateral is insufficient to satisfy the claim, the secured party becomes a general creditor for the remaining balance. Thus, the creditor does have a claim for the balance.
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