Loan Impairment and Lender Recourse
Covers Borrower default and what a Lender can do about it
Conditions vary but generally speaking a default is triggered by:
- Failing to make interest and principal repayments in whole and on-time
- Breaking a covenant in the loan terms such as a collateral coverage ratio
If the Borrower doesn't pay back all debt and close all positions by the end of the term (expiry date), the Borrower has defaulted. The status of the Line of Credit will be changed to liquidatable and the Arbiter will proceed to liquidate whatever collateral/security is available.
Remember, no recourse is possible if a Line of Credit is unsecured.
Recoverable funds will be:
If a Borrower is permanently incapable of repaying debt then the status of the Line will be changed to 'insolvent' by the Arbiter.
Lenders and Borrowers can of course at any point renegotiate terms.
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