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While lenders who extend credit on a secured basis typically hope to be paid without the need to resort to the collateral, the existence of the collateral certainly provides a degree of protection against the debtor’s default. Upon default, the collateral can be disposed of by the secured party, with the proceeds of disposition applied to the debt secured by the collateral. While in rare cases the proceeds may equal the amount secured, such a coincidence is unlikely. Rather, if the proceeds exceed the debt secured (and there is no junior secured indebtedness) the debtor is entitled to the surplus, and, if the proceeds are insufficient to satisfy the debt, the debtor or a secondary obligor, if there is one, is liable for the deficiency.

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