Ten Tips on UCC Filings and Secured Creditor Status

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1. Arguably, the most difficult aspect of becoming a secured creditor involves convincing a customer to pledge assets as collateral.
2. Another challenge involves properly filing the documents required to become a secured creditor.
3. Failure to file properly [improper filing] may result in having an unenforceable pledge of assets as collateral.
4. One of the most important reasons for a proper UCC filing is to establish the order of priority of claims when there is more than one secured creditor.
5. If a customer files for bankruptcy protection, a secured creditor is likely to receive a much higher payout than a general unsecured trade creditor.
6. Even if a debtor does not file for bankruptcy protection, in the event of payment default being a secured creditor and having a perfected security interest assets makes collecting the balance due more likely.
7. A Blanket Security Interest refers to a scenario in which the creditor has received from the debtor a pledge of substantially all of the assets of that debtor.
8. UCC filings are also important and are regularly used to protect the rights of companies that ship goods on Consignment.
9. Without a UCC-1 filing, consigned inventory would almost certainly be claimed by a creditor with a perfected security interest in inventory if the debtor defaulted on payment to that secured creditor.
10. For creditor companies that transact business in Canada, many of the same protections afforded under the UCC-1 process are available under Canada’s Personal Property Security Act.

© 2010 by Michael C. Dennis.  All Rights Reserved