When one borrows against a property, such as a car or home, and does not repay the loan, the property can be repossessed by the bank. Repossession is the process of recovering previously owned property because the borrowers did not pay off their loans. Repossession can also happen if a borrower fails to make mortgage payments or pay credit card debts.

Nonrecourse debt refers to a debt where there is no collateral backing it. Also called an unsecured loan, this form of debt lets the lender recover its losses in the event of nonpayment from the mortgagor’s personal assets used in the loan transaction. If you are in a recourse situation and are looking for ways to eliminate your nonrecourse liabilities, then there are several options available. One option is to sell the property used in the loan transaction. In fact, many people choose to sell their homes for proceeds instead of seeking other debt relief. The key is to work with a real estate professional who can explain the specifics of your situation to make sure you understand your options.

Another way to eliminate nonrecourse liabilities is through assignment. With assignment, all of your nonrecourse liabilities are assigned to the person or entity with the best interest in obtaining them. In other words, when you sell your house, you assign ownership of your home to the buyer and when you sell a car, you assign ownership of the car to someone who will buy it.

However, when you sell your asset, your liability is transferred to your partner. For instance, assuming that you own a partnership and are in a recourse liability situation, your partner would become the primary owner of the partnership. Once you sell the asset, your liability would be transferred to your partner. If you were assigned, your economic risk will be reduced since your partner would be the owner of your asset.

Another approach to assigning and managing the risk is through the transfer of all of your related risks. Under these circumstances, your economic risk will be reduced because the risk is assigned to another company, either a private firm or a partnership. As per the final regulations, the transferred risk should have the same risks as that of the borrower with regard to recourse liabilities. The transferred risk is typically the same as the one of the partner assigned the liability.

Other options for assigning and managing your economic risk are based on the cash value and/or the bottom dollar payment obligations. Under the cash value approach, you would receive cash payments equal to the value of each of your assigned recourse liabilities. If your business performs very well and you have adequate insurance coverage, then you may not need any bottom dollar payment obligations to ensure your long term viability.

Under the bottom dollar payment obligations, if your business performs badly, then you may need to pay some amount in excess of the actual profits earned. For instance, if the value of your assets declines, then you may need to incur some losses in order to generate adequate cash to pay off your other debts and obligations. This will result in your obtaining recourse liabilities that exceed the value of your assets. Under the final regulations, if you have bottom dollar payment obligations that exceed the fair market value of your firm’s assets, you will be required to provide additional funds to satisfy the latter obligation.

The final regulations on partnership and venture accountability state that you can assign your recourse liabilities and interest to an entity that has the capacity and the experience to take care of them. The entities that are qualified to undertake such assignment are referred to as the “asset manager”. In some instances, the asset manager may be a bank or a financial institution. It is advisable to seek advice from your legal advisors before assigning any part of your liabilities to these asset managers. In case you cannot assign your partnership or venture liabilities to the best possible entity, it would be prudent to seek the advice of a competent personal attorney who is versed with the laws on these matters.