When can a secured creditor pursue a deficiency after sale of collateral?

When can a secured creditor pursue a deficiency after sale of collateral?

• A. When permitted by the security agreement and applicable law, after applying sale proceeds to the debt; deficiency may be pursued.
• B. Always disallowed.
• C. Only if the debtor agrees.
• D. Only if the creditor pays any costs.

Answer: (A)

When a secured creditor sells collateral after default, the sale proceeds are used to satisfy the debt in a specific order: first to cover costs of the sale, then to reduce the principal and interest. After those amounts are paid, any remaining balance is a deficiency. Whether the creditor can pursue that deficiency depends on what the security agreement allows and what the applicable law permits. If the sale brings in less than what is owed, the creditor may seek the deficiency; if the sale yields more, the surplus goes to the debtor. The key point is that the deficiency isn't automatic or universal—it hinges on the contract terms and governing law after applying the proceeds to the debt.

When a secured creditor sells collateral after default, the sale proceeds are used to satisfy the debt in a specific order: first to cover costs of the sale, then to reduce the principal and interest. After those amounts are paid, any remaining balance is a deficiency. Whether the creditor can pursue that deficiency depends on what the security agreement allows and what the applicable law permits. If the sale brings in less than what is owed, the creditor may seek the deficiency; if the sale yields more, the surplus goes to the debtor. The key point is that the deficiency isn't automatic or universal—it hinges on the contract terms and governing law after applying the proceeds to the debt.