The removal of your collateral in lieu of your debt depends on the terms of your loan agreement. Generally, if you default on your loan and the lender decides to liquidate your collateral, then your collateral will be removed in lieu of your debt. The lender may choose to do this in order to recover the amount owed on the loan. If the value of the collateral is greater than the amount owed, then the lender may choose to keep the collateral and forgive the remaining balance. However, if the value of the collateral is less than the amount owed, then the lender may choose to liquidate the collateral and use the proceeds to pay off the debt.
