After collateral liquidation, which is the correct order of applying proceeds?

After collateral liquidation, which is the correct order of applying proceeds?

• A. To costs first, then debt, then excess to creditor.
• B. To the debt first, then costs, then any excess returned to the debtor.
• C. Only to the debt; nothing to costs or debtor.
• D. Proceeds are not applied against the debt.

Answer: (B)

Proceeds from collateral liquidation are applied in a defined sequence to settle obligations tied to the collateral. The first focus is on the debt owed, so the sale proceeds are used to satisfy the secured debt itself. Once that debt is addressed, the costs of liquidation (the expenses incurred to carry out the sale and enforcement) are paid next. Any remaining funds then go back to the debtor. This order protects the lender’s security interest by ensuring the owed amount is prioritized, while still allowing any surplus to return to the borrower if the collateral brings more than the debt plus costs.

Proceeds from collateral liquidation are applied in a defined sequence to settle obligations tied to the collateral. The first focus is on the debt owed, so the sale proceeds are used to satisfy the secured debt itself. Once that debt is addressed, the costs of liquidation (the expenses incurred to carry out the sale and enforcement) are paid next. Any remaining funds then go back to the debtor. This order protects the lender’s security interest by ensuring the owed amount is prioritized, while still allowing any surplus to return to the borrower if the collateral brings more than the debt plus costs.