What should be done with surplus proceeds upon the sale of a collaterised asset?
The question, as received
What should be done with extra money received over and above one’s debt when a collateral is sold?
The answer
Any surplus proceeds in excess of an outstanding debt realised from the sale of a collaterised asset must be returned to the debtor.
In short: the surplus must be returned to the debtor.
Fiqh basis
Rahn (collateral) is a contract in which a creditor mitigates risk of default by taking a collateral in the form of a pledge against an asset. In the event of default, the outstanding claim is taken from the sale of the collateralised asset. The creditor is only entitled to the amount contracted. He does not have any entitlement to the surplus from the sale.
And Allah knows best.
Mufti Faraz Adam
Based on the Hanafi school and on the question as it was asked. Another mufti may reach a different conclusion. Read the disclaimer.