> For the complete documentation index, see [llms.txt](https://docs.lendsprotocol.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.lendsprotocol.com/borrow-against-tokenized-stocks/liquidations.md).

# Liquidations

A liquidation reduces or closes a borrowing position that no longer has enough collateral for its debt. Its purpose is to protect leUSD solvency. Your vault becomes eligible for liquidation when its health factor reaches or falls below 100%.

### Partial liquidation

A partial liquidation sells only enough collateral to reduce the debt and restore health when that can be done safely. The configured default close factor limits a partial liquidation to 50% of the position's debt in one action. After a partial liquidation, the user may still have both collateral and debt.

### Full liquidation

A full liquidation can close the entire position when a partial liquidation would not restore safety. The configured hard full-liquidation level is below 80% health.

Full liquidation uses all collateral required by the settlement rules. If proceeds exceed the liquidation target, the remaining borrower surplus is returned as leUSD. If proceeds and protocol protection are insufficient, bad debt may be recorded.

## The Liquidation Penalty

The configured default liquidation penalty is 8%. It is taken from collateral value; it is not a separate payment charged to your wallet.

For example, if 1,000 leUSD of debt is covered, the target settlement may include up to 80 leUSD of additional value under an 8% penalty. Actual settlement depends on the liquidation size, sale proceeds, and position state.

The penalty makes liquidation materially more expensive than repaying before the threshold is crossed.

## How the Collateral Is Sold

The protocol's preferred path sells seized collateral for USDG and settles the debt in one onchain transaction. The sale must clear protocol safety checks tied to the oracle value. A backup settlement path can be used if the atomic route is unavailable.

Normal users do not need to run liquidators or submit liquidation transactions. Your responsibility is to keep your own position healthy.

## If Sale Proceeds Are Not Enough

Settlement prioritizes solvency:

1. Collateral sale proceeds cover the position's debt.
2. The insurance fund can absorb a principal shortfall.
3. Any remaining shortfall can become protocol bad debt.
4. Future realized protocol revenue is directed to bad debt before normal revenue distributions resume.

Bad debt can temporarily restrict PSM redemptions and sleUSD staking actions. This prevents value from leaving the system while a shortfall is being repaired.

## How to Avoid Liquidation

Act before health reaches 100%:

* repay leUSD to reduce debt;
* add more of the same collateral;
* maintain a larger buffer than the protocol minimum;
* monitor the liquidation price and accrued fees;
* plan around market closures, earnings, and volatile events;
* keep enough leUSD and gas available to respond.

There is no guaranteed grace period. A rapid price move can take a position from apparently healthy to liquidatable before you can submit a transaction.


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