Regulatory Framework For Business Transactions (RFBT) CEGG Practice Exam

When a secured debt is settled by offering the collateral in place of cash and the creditor accepts it as full satisfaction, the obligation is extinguished. The creditor’s acceptance acts as a complete discharge of the loan, so the debt ends even if the collateral’s value doesn’t match the outstanding balance. This is because the agreement to accept the collateral in full satisfaction removes the debtor’s liability and releases the security interest. The other ideas aren’t correct here: you don’t need equal value for the debt to be extinguished, because the acceptance of the collateral as full satisfaction is itself the discharge. The creditor’s acceptance already serves as the necessary agreement to settle the debt, so extra conditions about the creditor approving aren’t required. And the loan’s term (short-term vs long-term) doesn’t change this principle.