We represent lenders and businesses in all aspects of secured transactions. From loan and credit documentation to default and enforcement, when a transaction involves the pledge of an interest in personal property under Article 9 of the Uniform Commercial Code, we provide solutions.
Frequently Asked Questions
How do I perfect a security interest in collateral?
The method of acquiring an enforceable security interest in collateral subject to Article 9 of the UCC typically requires an agreement (a security agreement) between the creditor and the borrower stating that the creditor is entitled to the security interest based upon the provision of some value to the borrower (typically a loan or line of credit).
In order to catalogue the creditor’s security interest so that third parties are put on notice as to the existence of the security interest, perfection of a secured transaction requires the completion and filing of a financing statement (also known as the UCC-1 form) with the applicable Secretary of State’s office. Depending on the location of the borrower, the type and location of the collateral, and other factors, the method of acquiring a security interest may vary significantly.
How long does my security interest last?
When a creditor files a financing statement with the Secretary of State, absent certain exceptions, that financing statement is only effective for five (5) years from the date it is filed. Creditors may extend that time period by filing a continuation statement with the Secretary of State. Such continuation statements must be filed before the five year expiration date, but not earlier than six months prior to that expiration date.
Important changes to Article 9 are taking effect this year (2011).
In 2011, the Indiana General Assembly made certain amendments to Article 9 of the UCC as enacted under Ind. Code § 26-1-9.1-105 et seq. These changes include important modifications to how debtors are identified in financing statements (how to determine both the ‘name’ and ‘location’ of a debtor has been modified) and other changes relating to ‘certificates of title’, ‘registered organizations’, and ‘public records’. To learn more about these modifications, please see this article, which includes a chart of all changes to take effect in Indiana in 2013.
What happens to my security interest in a debtors collateral when the debtor files for bankruptcy?
When a debtor files bankruptcy, creditors with a secured interest in that debtor’s collateral have the opportunity to file a proof of claim specifically designating the secured nature of their claim, and may also potentially file a motion for relief from stay with the Bankruptcy Court or enter into an affirmation agreement with the debtor to exclude the collateral from the bankruptcy filing. There are numerous potential issues that may arise with respect to secured creditors in bankruptcy, and readers are encouraged to contact Rubin & Levin to discuss any such issues.
If you are a secured lender dealing with a borrower struggling to make payments, or have questions regarding the potential applicability or process of an Article 9 sale, issues relating to your security interest in collateral of debtor entering bankruptcy, or any other issues relating to secured transactions, please contact John Hoard at Johnh@rubin-levin.net.
What is an Article 9 Sale?
Under Article 9, a secured creditor is entitled to take possession of its collateral without assistance from the courts. Where the borrower consents, it can surrender the assets to the creditor. Once the borrower has surrendered the collateral to the creditor, the creditor has the right to sell the collateral as long as it does so in a “commercially reasonable manner.”
“Commercially reasonable manner” can include sale of the collateral to the creditor itself, provided that such a sale is made on a recognized market or subject to standard price quotations. The creditor can also retain the collateral in satisfaction of the debt and avoid any issues relating to sale.
In order to effectuate such a sale or retention in satisfaction, the creditor must provide notice to the debtor, any guarantor, as well as to any junior lien creditors with an interest in the collateral (as identified by a search for other applicable UCC financing statements indexed to the debtor). Such notice must provide a description of the collateral, the intended sale or disposition, the time and place of the sale or disposition, and must advise the borrower of its liability for a deficiency and that it is entitled to an explanation of any unpaid debts or charges.
The purchaser at such a sale receives the debtor’s interest in the collateral free and clear of the lien of the creditor initiating the sale, as well as the liens of all other properly noticed junior lienholders.
What is Article 9 of the Uniform Commercial Code?Article 9 of the Uniform Commercial Code (“UCC”) governs the creation, perfection, maintenance and other details regarding security interests of creditors in various collateral of borrowers. A security interest may be taken in almost anything of value, provided, however, that a security interest in real property is governed by a different set of state laws (see the Foreclosure and/or Real Estate FAQs).