Garuda Excavations purchases a 5 tonne excavator from Tonka Inc for $350 000 with the help of a secured loan for that amount from Bank X.The loan covers the full amount of the purchase and is secured against the machinery.Garuda uses the excavator for two years,but notwithstanding Garuda's valiant efforts,the company is constantly in the red and is eventually petitioned into bankruptcy by its creditors.Upon learning of the petition,Bank X moves swiftly to realize on its security.It takes immediate possession of the excavator,which it sells for $300 000.It will have an unsecured claim against Garuda's estate in bankruptcy for $50 000.

Question

Quizplus · Accepted Answer

Bank X's security interest in the excavator allows it to take possession and sell the equipment to recoup its loan. The sale of the excavator for $300,000 leaves a deficiency of $50,000, which will be an unsecured claim against Garuda's bankruptcy estate.

Garuda Excavations Purchases a 5 Tonne Excavator from Tonka Inc