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Cross Collateralization

Cross-collateralization is a clause in a contract that provides that the collateral for a loan will be whatever collateral has been listed for any loan by that same lender.  For instance, if a husband borrows $10,000.00 from a credit union in order to purchase a car and his wife, at a later time, borrows $10,000.00 from that same credit union to purchase her car, then it is likely that those two debts have been cross-collateralized.  This means that there are clauses in each contract that say that each loan is secured by both cars.  This can cause a problem in a bankruptcy in the event that both the husband and wife file and one of them wishes to keep a car and the other one wishes to surrender a car.

Charles Chesnutt

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