Limited Recourse Debt - Explained
What is Limited Recourse Debt?
Written by Jason Gordon
Updated at September 26th, 2021
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Table of Contents
What is a Limited Recourse Debt?Limited Recourse vs. Full Limited RecourseAcademic ResearchWhat is a Limited Recourse Debt?
A limited recourse debt refers to a debt which a lender has limited claims if the borrower happens to default. Generally, it means that there is a legal claim against collateral posted to secure the loan, but the debtor cannot be held personally liable for the debt.
Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY
Limited Recourse vs. Full Limited Recourse
There are two forms of recourse debt; limited and full. With full recourse debt, a granter has the right to make a claim against the debtor. This could lead to the creditor seizing the borrower's assets, including those that a borrower acquired using the original loan. On the other hand, limited recourse debt sticks to the original loan contract. In other words, a lender can only seize those assets mentioned on the contract and nothing else. The lender has no right to seize any other asset a borrower possesses, especially if it was not part of the collateral.
Related Topics
- What is a Security Interest?
- Collateral
- Pledge as Collateral
- Collateralize
- Cross Collateralization
- After-Acquired Collateral
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Unsecured Loan Definition
- Unencumbered Asset
- What is a Secured Creditor?
- Unsecured Creditor
- What are the benefits of security interests for creditors?
- Limited Recourse Debt
- Uniform Commercial Code - Article 9