Michigan Collections Manager License Practice Test

If a secured party is backed by a deposit account, what can they do with the balance?

1. Return it to the debtor

2. Apply it to the secured obligation or discharge

3. Transfer it to another account

4. Invest it until the obligation is met

The correct answer is: Apply it to the secured obligation or discharge

When a secured party holds a security interest in a deposit account, they have certain rights regarding the balance in that account. The correct choice emphasizes that the secured party can apply the balance directly to the secured obligation or use it to discharge the debt owed by the debtor. This ability is an important aspect of secured transactions, as it allows the creditor to ensure that the outstanding debt is satisfied. The secured party effectively has a priority claim to the funds in the deposit account, which means they can take action to recover the amounts owed from that account. This right is typically outlined in the security agreement and is reinforced by the Uniform Commercial Code (UCC), which governs secured transactions. In contrast, returning the balance to the debtor would not fulfill the secured party's interests in recovering the owed amount. Transferring the funds to another account or investing them until the obligation is met would also be contrary to the secured party’s purpose of immediate debt recovery, as it would delay the satisfaction of the obligation. Therefore, applying the balance to the secured obligation or discharging the debt is the action that aligns most closely with the rights granted to a secured party in a secured transaction.