Unfortunately, you will also lose collateral, but this is probably the best option if collateral-guaranteed loans are worth much more than guarantees. In the film industry, cross-collateralized clauses in production contracts allow the promotional studio to recoup some of its losses for money films from hit films produced. [6] Banks and other lenders are willingly paid, and one of the best ways they can ensure they are paid is to require security to ensure payment of the money a company lends. Small entrepreneurs should carefully check their loan contracts before signing. One of the provisions you need to pay attention to is a cross-collateralization clause, which means that your company gives the bank more rights than you realize. In Chapter 13, we can sometimes deal with the problem of cross-dressing phenomena by using the rigid provisions of the bankruptcy law. Suppose you put $10,000 for a $5,000 car, but you also owe $6,000 on a credit card with the same credit union. The Cram-Down settlement only requires that you pay 5,000 USD, the value of the car. The rest of the credit union`s debt will not be guaranteed and therefore merciful. On the other hand, if you owe $10,000 for a car worth $12,000 and you also owe money on a credit card with the same credit union in Chapter 13, you should pay the full $12,000 because the car insured both the car credit and the credit card debts. This allows you to keep the guarantees, but it means that you have to pay off the debts that would be repaid in the event of bankruptcy if there was no cross-guarantee agreement. Cross-protection is the act of using an asset that is a security for a first loan as collateral for a second loan. If the debtor is unable to make the expected repayments of one of the two loans within the allotted time, the lenders concerned may finally impose the liquidation of the asset and use the proceeds for repayment.

The clauses of cross-collateralty can easily be overlooked, so people do not know how to lose their property in several ways. Financial institutions often cross the real estate guarantee when a client borrows one of their clients and then continues with other financings from the same bank. (While they will, if everything remains „internal,“ there is a reluctance among banks to guarantee a piece of property already used to finance with another institution.) „Cross Collateral“ refers to a poor provision contained in most credit union contracts. Some people call it a dragnet clause. No matter what you call it, it works like this: if you lend money to a credit union to buy a car or truck, the credit contract you sign will list the car or truck as collateral for the credit.