Legal Definitions - cross-collateral

Definition: Cross-collateral refers to security given by all parties to a contract. In bankruptcy, it is a security that protects a creditor's post-petition extension of credit and pre-petition unsecured claims, which obtain priority over other creditors' pre-petition unsecured claims.

Examples:

• When a person takes out a loan to buy a car, the car becomes collateral for the loan. However, if the person also has a credit card with the same lender, the lender may require the person to cross-collateralize the loan and credit card. This means that if the person defaults on the credit card, the lender can repossess the car as well.
• In bankruptcy, a creditor may use cross-collateral to protect their interests. For example, if a person owes money on a car loan and a credit card to the same creditor, the creditor may use the car as collateral for both debts. This gives the creditor priority over other creditors who may only have a claim to one of the debts.

These examples illustrate how cross-collateral works in practice. It allows lenders to secure their loans by using multiple assets as collateral, which can be beneficial for both the lender and borrower. However, it can also be risky for the borrower, as defaulting on one debt can result in the loss of multiple assets.