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Secured Debt in bankruptcy

  • 11-09-2019 10:03am
    #1
    Elite Woad Raider
    Closed Accounts Posts: 77 ✭✭


    For the purposes of bankruptcy, does a secured loan remain secured after the secured asset is sold?


Comments

  • #2
    davindub
    Registered Users, Registered Users 2 Posts: 1,447 ✭✭✭davindub


    Elite Woad Raider wrote: »
    For the purposes of bankruptcy, does a secured loan remain secured after the secured asset is sold?

    No the security refers to the asset, any deficite is "unsecured" if that makes sense.


  • #3
    Elite Woad Raider
    Closed Accounts Posts: 77 ✭✭Elite Woad Raider


    Thanks. I know some countries have alternatives to bankruptcy but have different qualifying criteria. For example, New Zealand has a No Asset Procedure.

    This allows you to include most debts except secured loans. I was wondering what happens the excess debt once the security was repossessed and sold.


  • #4
    Peregrinus
    Registered Users, Registered Users 2 Posts: 26,712 ✭✭✭✭Peregrinus


    Elite Woad Raider wrote: »
    This allows you to include most debts except secured loans. I was wondering what happens the excess debt once the security was repossessed and sold.
    The unpaid balance of the debt is still a debt, but now it's unsecured. It takes its place in the order of priorities along with other unsecured debts.

    Unless - and you occasionally get this - the debt has been granted on what are called "limited recourse" terms. I led you money, the debt is secured on your property Blackacre, and I agree as one of the terms of the loan that, in the event that you default, my recourse will be limited to enforcing my security over Blackacre. That's perfectly lawful, but relatively rare in practice (because why would a lender agree to such a term?) So, if it's a limited recourse arrangement, once the security has been enforced that's it; regardless of whether the debt was fully cleared from the proceeds of the asset, nothing more is due.


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