Michigan Collections Manager License Practice Test

What action can secured parties take after default?

1. Ignore the default

2. Reduce to judgment, foreclose, or enforce a claim

3. Release the collateral immediately

4. Charge additional fees only

The correct answer is: Reduce to judgment, foreclose, or enforce a claim

When a debtor defaults on a secured obligation, secured parties, who hold an interest in the collateral, have specific rights and remedies available to them under the Uniform Commercial Code (UCC). One of the primary actions they can take is to reduce the obligation to judgment, which formally recognizes the debt in a court of law, or to foreclose on the collateral that secures the debt. This allows the secured party to either reclaim the collateral or sell it in order to satisfy the outstanding debt, depending on the terms of the security agreement and applicable state laws. The option to "enforce a claim" means that the secured party can actively pursue the collection of the debt using legal avenues, such as filing a lawsuit if necessary. This comprehensive approach ensures the secured party has a mechanism to recover the owed amounts after default, reflecting the legal rights granted to them when they took on the role of a secured creditor. Other options, such as ignoring the default or immediately releasing the collateral, do not reflect the legal entitlements or practical strategies available to secured parties following a default. Ignoring the default would leave the secured party without remedy and allow the debt to continue uncollected, while releasing the collateral without any means of recovering the debt would likely result in a