What occurs when a debtor defaults on an obligation secured by collateral?

When a debtor defaults on an obligation secured by collateral, the secured party has the right to enforce its security interest. This right enables the secured party to take necessary actions to recover the collateral to satisfy the debt owed by the debtor. Enforcement can include repossessing and selling the collateral, depending on the terms of the security agreement and applicable law.

The concept of a security interest is designed to provide lenders with a remedy in the event of non-payment or default. The secured party does not have to go through court to seize the collateral; this is often handled through self-help measures, as long as it does not breach the peace during repossession.

In this context, the other options do not accurately reflect common legal principles regarding secured transactions. Automatic regaining of ownership by the debtor upon default does not occur, as the secured party retains rights to the collateral until the debt is fulfilled. Additionally, seeking court approval is generally not required for repossession unless there is a specific legal dispute or if the repossession would lead to a breach of the peace. Lastly, the secured party does not lose rights to the collateral; rather, they gain the ability to enforce those rights once default occurs.