Michigan Collections Manager License Practice Test

In consumer goods transactions, what should a secured party do with the surplus or deficiency results?

1. Transfer all rights of the debtor

2. Discharge the security interest held by the secured party

3. Discharge junior liens

4. All of the above

The correct answer is: All of the above

In consumer goods transactions, when there are surplus or deficiency results after a secured party enforces its rights, such as through the sale of collateral, the secured party must address these outcomes in accordance with the relevant laws, which often include provisions found in the Uniform Commercial Code (UCC). When there is a surplus, the secured party is generally required to return any excess funds to the debtor after the outstanding obligation has been satisfied. This surplus indicates that the sale of the collateral generated more proceeds than what was necessary to cover the debt, thus ensuring that the debtor receives what is rightfully theirs beyond the amount owed. In cases of deficiency, where the sale does not cover the entire debt, the secured party can pursue the debtor for the remaining balance. However, the treatment of junior liens comes into play, as the secured party is obligated to address any subordinate interests when enforcing their security. This involves discharging any junior liens to maintain the priority of the security interest. In conclusion, by transferring all rights of the debtor, discharging the security interest once the obligation is met, and discharging junior liens where applicable, the secured party complies with both the ethical and legal requirements in consumer goods transactions, ensuring fair treatment of the debtor while enforcing their rights as a