# Bad Debt Risk The primary risk for both the protocol and lenders is that the value of the borrowers’ collateral decreases to below the debt value or the debt increases too rapidly. In either scenario, the borrower lacks a financial incentive to repay their loan, as it would result in a loss, leading to bad debt. While Solera's liquidation framework aims to effectively repay vault loans in an effective manner, issues may arise during the liquidation process (high market volatility, slippage, gas costs, illiquidity, etc.) which may prevent the deposited collateral from being sold in a timely manner to make up for the borrowed amount, resulting in the protocol accruing bad debt. Bad debt may be realized in "black swan" events. And possibly, an inability to repay user loans may arise due to insufficient liquidity in adverse market conditions. If bad debt is accrued in Solera markets, it will be socialized amongst pool lenders unless alternate remediations are determined by the risk and governance committee, external parties, or insurers. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.solera.market/protocol/integrations/bad-debt-risk.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.