Under a security agreement , the debtor's personal property non-real estate and intangibles, such as intellectual property, are often used as collateral.
Other examples of collateral include inventory, equipment, machinery, farm products and crops, appliances, furnishings, fixtures, accounts receivable, deposit accounts, contract rights, and general intangibles. If the debtor defaults on repayment, the creditor also called the secured party will be able to keep or sell the collateral. Searches are limited to 50 characters.
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The UCC states that, "A security interest in investment property, deposit accounts, letter-of-credit rights, or electronic chattel paper may be perfected by control of the collateral. For example, a secured party may have control of a deposit account if the bank, the debtor and the secured party have all agreed that the secured party may handle the funds in that account "without further consent by the debtor.
Automatically upon attachment. The most important type of security interest that is perfected immediately upon attachment is what is known as a purchase-money security interest PMSI in consumer goods. A PMSI generally involves either: 1 a debtor buying an item on credit from a seller where the seller will be the secured party; or 2 a debtor using a loan from a bank directly to buy an item from a seller, where the bank will be the secured party. When the debtor in one of these circumstances is buying consumer goods, the secured party seller or bank does not need to file a financing statement in order to perfect the security interest.
Note, however, that, while it may not be necessary to file a financing statement, not all security interests in PMSIs in consumer goods are perfected upon attachment.
For example, some statutes governing certificates of title, such as for cars, require that a security interest be indicated on the certificate in order for the interest to be perfected. Finally, be aware that the UCC states that perfection occurs automatically upon attachment for about a dozen other relatively unusual types of collateral. For more information, check UCC Section Having covered the main ways to perfect a security interest, it is important to note that there may be situations where a secured party with a perfected security interest would still have that interest subordinated to some other party.
However, in most cases, perfecting a security interest provides very substantial protection of that interest. However, not all states have adopted all sections of the current model UCC. Moreover, the model UCC specifically leaves it to individual states to determine the precise wording of certain sections.
Therefore, you should always check your own state's commercial code for the most accurate information. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site.
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Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Grow Your Legal Practice. Meet the Editors. Learn the rules about how to attach and perfect a security interest under the UCC. Attachment A creditor has a security interest in collateral, and becomes a secured party, if and when a security interest "attaches. In simplest form, the requirements are that: value be given for the security interest the debtor has rights in the collateral or power to transfer the collateral to a secured party ; and the debtor "authenticates" a security agreement.
Let's briefly look at each of these requirements. Perfection A secured party perfects a security interest in order to help assure that no other party, such as another creditor or a bankruptcy trustee, will be able to claim the same collateral in the event that the debtor becomes insolvent. However, generally speaking, the primary ways for a secured party to perfect a security interest are: by filing a financing statement with the appropriate public office by possessing the collateral by "controlling" the collateral; or it's done automatically upon attachment of the security interest.
The UCC specifies what must be contained in a financing statement: the name of the debtor the name of the secured party; and an indication of the collateral. May Business Formation. Choosing a Business Structure. Sole Proprietorships. Forming a Corporation. See All Business Formation Articles.
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