Because of depreciation, an amount received on a sale of collateral may be less than the amount owed on the debt, but a debtor who has defaulted is not likely to have the funds to pay the deficiency.

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Depreciation can reduce the value of collateral over time, so the sale proceeds may not cover the outstanding debt. If a debtor has defaulted, it often indicates financial difficulties, making it unlikely they can cover the deficiency.

Because of Depreciation, an Amount Received on a Sale of Collateral