Thalia C.

Sanders

Video, Marvin Sapp, I’ve got a river flowing,

http://www.youtube.com/watch?v=hcQOxxX3vVI

Video, Vicki Winan, Safe in his arms, http://www.youtube.com/watch?v=j4ylj2uqNGY

Video, Vicki Winan, More than enough, Jehovah Jireh,

http://www.youtube.com/watch?v=oFEOHUbYTIk

Video, Vicki Winan, Long as I got King Jesus,

http://www.youtube.com/watch?v=lyAMCkHOb8U

Did the bank have a perfected security interest in the property? Why?

Elmer Strong and Pam Strong, dba The E. Strong Oil Company filed a financing
statement that may have been filed publicly under the name E. Strong because third
parties can learn of the secured party’s security interesti in the debtor’s collateral. The
UCC Article 9 governs the secured transactionsii in personal property. (Cheeseman,
2006, page 347, and See Exhibit 15-3). Cabool state Bank v. Radio Shack, Inc., 65 S.W.3d
613, Southern District Division One, 2002, http://www.osca.state.mo.us. One of the most
common means of perfection is by filling a financing statement under the debtors
name [UCC 9-502(a)(1). Finally a problem will arise if the debtor subject to a filed
perfected security interest changes his or her name and goes into default: basic
remedies are cumulative under Article 9 [UCC 9-601(c)] Banks Brothers Corp. v.
Donovan Floors, Inc., 239 Wis.2d 381, 620 N.W.2d 631; disposition of collateral [UCC 9-
602(7), 9-603, 9-610(a), 9-620] Fielder v. Credit Acceptance Corp. 19 F.Supp.2d 966. (In
Re Greenbelt Cooperative, Inc., 124 B.R. 465, 1991 Bankr. Lexis 233 (1991). US Bankruptcy
Court, MD, defective filing of the financing [UCC 9-503]. According to West, perfecting
a security interest consist of filing a financing statement containing the written names of
the secured party and the debtor and indicating the collateral covered by the
financing statement, as followed (page 552):
a. Communication of the financing statement to the appropriate filing office
b. The financing statement must be filed under the name of the debtor;
c. The classification of collateral determines whether filing is necessary and where
to file (Exhibit 283-3 West, pages 545 and 546). [UCC 9-301]

The perfection without filing [UCC 9-309(1) and (13)] is as follows:

a. By transfer of collateral—the debtor can transfer possession of the collateral to
the secured party. [UCC 9-310, 9-312(b), 9-313]
b. By attachment of a Purchase-Money Security interest in comer goods (PMSI), the
secured party’s security interest is perfected automatically with goods bought or
used by the debtor for personal, family, or household purposes. [UCC 9-309] In all
thirteen types of security interest the PMSI can perfect the security interest by
attachments. (See Exhibit 28-3: Types of Collateral and Methods of Perfection,
page 545-46; West, page 550-51).

Many states have enacted laws that protect a debtor’s homestead from creditors.
Depending upon state law, at least a portion of the equity in a debtor’s home may still

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be protected from creditors if the owner declares bankruptcy, and Florida and Texas
give the largest exemptions (Cheeseman, page 355).

The general rule is that a perfected secured party’s interest has priority over the interest
of the following parties (West, page 554, [UCC 9-317, 9-322]:
1. An unsecured creditor
2. An unperfected secured party.
3. A subsequent lien creditor, such as a judgment creditor who acquires a lien on
the collateral bye execution and levy.
4. A trustee in bankruptcy, the perfected secured party has priority to the proceeds
from the sale of the collateral by the trustee.
5. Most buyers who do not purchase the collateral in the ordinary course of a sellers
business.

In essence, distribution of estate assets less than 11 U.S.C. of the Bankruptcy Code in
Section 726 allows for payment of certain unsecured creditors granted priority of the
security interest against the debtor (In re Environmental Aspecs, Inc., 235 Bankr. 378
(E.D.N.C., Raleigh Div. 1999). Whether a creditor is granted priority status depends upon
whether the claim falls within a category under 11 U.S.C. Section 507. All priority claims
are paid in the order specified within 11 U.S.C. Section 507 to the extent funds exist, until
the funds run out in Section 507(a), then 507 (a)(2) etc. (Anderson, page 244-247). If
after all secured creditors and all priority creditors have been paid, funds still remain,
the general unsecured creditors have an opportunity to participate in distribution
(page 247-248).

An important exception to the first-in-time rule involves certain types of collateral in

which one of the perfected security parties have a PMSI [UCC 9-324(a)]. The second
exception to the first-in-time rule security interest in Inventory. [UCC 9-324(b)]

In addition to covering collateral already in the debtor’s possession, a security

agreement can cover various other types of property, including the proceedsiii of the
sale of collateral, after-acquired property, and future advances. (West, 207, page 351).
However, no financing statement has to be filed if the creditor has physical possession
of the collateral. A secured creditor who holds the debtor’s property as collateral must
use reasonable are in its custody and preservation [UCC 9-207]. On the contrast a
priority credit is an unsecured creditor who holds claims against the debtor that are
given preference in any repayment distribution. Some claims Congress has afforded
statutory priority include back alimony or support, taxes, wages to employees, etciv
(Anderson, 2006, page 22). A priority creditor in a bankruptcy law shall receive payment
before the unsecured creditors. Unsecured creditors are the last to be paid, in a
Chapter 7 Bankruptcy case as long as misconduct does not occur. (Page 46;
Cheeseman, page 357; Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 1998 U.S. Lexis
1595 (1998).

A security interestv in proceeds perfects automatically on the perfectionvi of the security

party’s security interest in the original collateral and remains perfected for twenty days
after receipt of the proceeds by the debtor. The twenty-day automatic perfection
period can be extended in the original security agreement [UCC 9-315(c) and (d)]. The

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Thalia C. Sanders

UCC also permits a security interest in identifiable cash proceeds to remain perfected
after twenty days [UCC 9-315(c)(2)] (West, pages 544-551). On the contrast, the entity
that extends the credit and obtains the PMSI can be either the seller or a financial
institution that lends the buyer the funds with which to purchase the goods and the
debtor may not be entitled to discharge the debt in Bankruptcy (Sears, Roebuck & Co.
v. Conry, 321 Ill.App.3d 997, 748 N.E.2d 1248, 255 Ill.Dec. 178 (3 Dist. 2001); [UCC 9-
102(a)(2)]. A creditor who extends credit to a consumer to purchase a consumer good
under a written security agreement obtains a purchase money security interest in the
good. This agreement automatically perfects the creditor’s security interest at the time
of the sale. The creditor does not have to file a financing statement or take possession
of the goods to perfect his or her security interest. [UCC 9-311]This interest is called
perfection by attachment or the automatic perfection rule. The exceptions to the rule of
automatic perfection for PMSI’s are as followed: certain types of security interest that
are governed by other federal or state laws may require additional steps to be
perfected; the second exception occurs when the sale is to a business or entity that is
not considered a consumer under Article 9, 99 PMSIs often involve a business’s inventory
or livestock (West, page 551, [UCC 9-324]). Two types of consumer goods are excepted
from this rule. Financing statements must be filed to perfect a security interest in motor
vehicles and fixtures (Cheeseman, page 349 [UCC 9-302(1)(d)]. The UCC recognizes
the following exceptions to the perfection rule (Cheeseman, page 349-350):

Inventory as collateral [UCC 9-312(3)]

Buyer in the ordinary course of business [UCC 9-307(1)]
Second hand consumer goods [UCC 9-307(2)

Nevertheless, a security interest is perfected by the definition of the collateral which is

divided into two classifications: tangible and intangible (See Exhibit 28-3, West, page
545). Exhibit 28-3 summarizes the various classifications of collateral and the methods of
perfecting a security interest in collateral falling within each of those classifications.vii

A financing statement is effective for five years from the date of filing [UCC 9-515]. If a
continuation statementviii is filed within six months prior to the expiration date, the
effectiveness of the original statement is continued for another five years, starting with
the expiration date of the first five-year period [UCC 9-515(d) and (e)].

Moreover, when a creditor extends credit to a debtor and takes a security interest in
some personal property of the debtor, it is called a secured transaction. The secured
party is the seller, lender, or other party in whose favor there is a security interest. If the
debtor defaults and does not repay the loan, then the secured party can foreclose and
recover the collateral.

Generally, the debtor will purchase new inventory to replace the inventory sold. The
secured party wants this newly acquired inventory to be subject to the property clause
continues the secured party’s claim to any inventory acquired thereafter, or the after-
acquired property.ix (West, 2007, page 552).

However, in order for the Tax Department, in the state of Illinois, the Department of
Revenue seized all of the E. Strong Oil Company assets: property, but not inventory,

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equipment, accounts, and other assets. However, the First National Bank did not file a
deficiency judgment and is only to do this procedure if E. Strong Oil Company is in
default of paying their bills (Cheeseman, page 343 [UCC 9-615(d) and (e)]). State law
specifies where the financing statement must be filed. The UCC provides that a State
may chose either to file with the Secretary of State or the County Clerk in the county of
the debtor’s residence or, if the debt is not a resident of the State, in the county where
the goods are kept or another county office or both where to file (Cheeseman, page
348; West Law, page 550).

Mr. and Mrs. Strong have created a secured transaction, which is a note. However you
can create a security interest by a written or authenticated security agreement signed
or authenticated by the debtor and describing the collateral subject to the security
interest. Next the secured party must give value to the debtor. Lastly, the debtor with
some exceptions must have rights in the collateral as in ownership interest or right to
obtain possession of the specified collateral. The rights and duties of debtors and
creditors should be able to request information [UCC 9-525(d)] and release, assignment,
and amendment of uniform amendment form [UCC 9-514, 9-521(a)(b)(c); confirmation
or accounting request by debtor ([UCC 9-210, 9-625(f)]; and a termination statement
[UCC 9-513, 9-525(e)(4) and (f)]; See Exhibit 28-3: Types of Collateral and Methods of
Perfection, West, page 545-546). The types of collateral that utilize methods of
perfection are as follows:

1. Tangible
a) Consumer goods
b) Equipment
c) Farm products
d) Inventory
e) accession
2. Intangible
a) Chattel paper
b) Instruments
3. Accounts
4. Deposit accounts
5. General intangibles

To minimize the risk associated with extending unsecured credit, a creditor may require
interest in the debtor’s collateral. The collateral secures payment of the loan. This type
of credit is called secured credit.

Like the contractor that performs work and provides services and resources to provide
the materials for the improvements. The contractor’s investments are protected by
state statutes that permit them to file a material person’s lien (mechanics lien) against
the value added, improved real property (Cheeseman, 346). If the contractor has been
paid then the property owner should obtain a signed release of lien (lien release).

Cheeseman (2006) illustrates, a three-party secured transaction is in Exhibit 15-4 (page

346). The bank obliged the Strong’s request for secured credit, and security interest was
given in their personal property; goods; accounts; and the other assets may have been

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instruments, such as note, etc; and general intangibles along with the consequencesx
of an improper filing etc. (Cheeseman, 550). A secured party’s interest is perfected or
unperfected may have serious consequences for the secured party if the debtor
defaults on the debt or files for bankruptcy (West, page 554). [UCC 9-317, 9-322].

The secured party may relinquish the security interest and proceed with any judicial
remedy available, such as proceeding to judgment on the underlying debt, followed
by execution and levy on the nonexempt assets of the debtor (West, 562). So to
conclude, since the filing statement was affirmed in court then the creditor is right to
have priority in a security interest, the consequences are inevitable. I do think people
should pay their taxes first because the consequences can be very serious if you owe
taxes, and the bargaining is very difficult for smaller creditors with even more money at
stake; because taxes like the student loans we use to go to this school are non-
dischargeable even in Bankruptcy Court.

i
Security interest is defined as any interest in personal property or fixtures which secures payment or
performance of an obligation [UCC 1-201(37].
ii
Secured transaction is defined as any transaction in which the payment of a debt is guaranteed, or secured, by
personal property owned by the debtor in which the debtor has a legal interest.
iii
Proceeds include whatever is received when collateral is sold or disposed of in some other way [UCC 9-
102(a)(64)]. A secured party’s interest in the collateral includes a security interest in the proceeds of the sale of
that collateral.
iv
The debtors interest not exceed $400 in any particular item or $8000 in aggregate value in household furnishings,
goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the
personal, family, or household use of the debtor or a dependent of the debtor.
v
Security interest is defined as any interest in personal property or fixtures which secures payment or
performance of an obligation [UCC 1-201(37).
vi
Perfection is the legal process by which secured parties protect themselves against the claims of third parties
who may wish to have their debts satisfied out of the same collateral. Perfection is usually accomplished by filing a
financing statement with office of the appropriate government official. In some instances, the security interest
becomes perfected without the filing of a financing statement.
vii
There are additional classifications such as agricultural liens, investment property, and commercial tort claims.
For definitions of these types of collateral, see UCC 9-102(a)(5),(1)(13), and (a)(49).
viii
Continuation statement is filed within six months prior to the expiration date, the effectiveness of the original
statement is continued for another five years, starting with the expiration date of the first five-year period (UCC 9-
515(d) and (e). The effectiveness of the statement can be continued in the same manner indefinitely. Any attempt
to file a continuation statement outside the six-month window will render the continuation ineffective, and the
perfection will lapse at the end of the five-year period.
If a financing statement lapses, the security interest that had been perfect by the filing now becomes unperfected.
[UCC 9-515 (c)]. (West, page 551).
ix
After-acquired property is property that the debtor acquired after the execution of the security agreement. The
security agreement may provide for a security interest in after-acquired property [UCC 9-204].
x
Any improper filing renders the secured party unperfected and reduces the secured party’s claim in bankruptcy
the secured party’s claim in bankruptcy to that of an unsecured creditor. (West page 550).

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