CH 6 SECURED TRANSACTIONS # 2 1) How long is a financing statement effective? Ho

Question

CH 6 SECURED TRANSACTIONS # 2

1) How long is a financing statement effective? How can it be extended?

2) What is the creditor's obligation realted to a filed financing statement once the debt is paid off by the debtor?

3) Upon debtor's default what rights does the creditor have to the collateral?

4) If upon repossesiion and resale the creditor gets an amount IN EXCESS of the debt can the creditor keep it?

5) If upon repossession and resale the creditor gets an amount LESS that the outstanding debt does the creditor have any further legal rights against the debtor?

Explanation / Answer

1) How long is a financing statement effective? How can it be extended

If a continuation is not filed, the financing statement will lapse 5 years from the original filing date. A continuation extends the filing period 5 additional years from the initial filing date. Subsequent continuations may be filed in increments of 5 years and always expire on the anniversary date of the initial filing. A continuation may be filed up to 6 months before the expiration date of the financing statement. Under Article 9, all lapsed and terminated filings remain active for search reporting purposes until one year after the initial financing statement lapses or would have lapsed.

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2) What is the creditor's obligation realted to a filed financing statement once the debt is paid off by the debtor?

Secured transactions come in many forms, but three types are most common for consumers: pledges, chattel mortgages, and conditional sales. A pledge is the delivery of goods to the secured party as security for a debt or the performance of an act. For example, assume that one person has borrowed $500 from another. Assume further that the debtor gives a piece of expensive jewelry to the creditor. If the jewelry is to be returned to the debtor after the debt is repaid, and if the creditor has the right to take full ownership of the jewelry if the debtor does not pay the debt, the arrangement is called a pledge. A chattel mortgage is like a pledge, but in a chattel mortgage transaction, the debtor is allowed to retain possession of the property that is put up as collateral. If the debtor fails to repay the debt, the creditor may take ownership of the property. A third type of secured transaction, the conditional sale, uses a purchase money security interest. A purchase money security interest arises when a creditor lends money to a borrower, who uses the money to purchase a particular item. To secure repayment of the loan, the creditor receives a lien on, or claim to, the purchased item. The lien gives the creditor a claim to the property that may be asserted if the borrower does not repay the loan

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3) Upon debtor's default what rights does the creditor have to the collateral?

In order for a creditors security interest to attach (i.e., to become enforceable):

(1) The debtor must have rights in the collateral; and

(2) The secured party must give value (e.g., extension of credit, consideration) in exchange for an interest in the collateral; and either

(3) The collateral must be in the secured partys possession, OR

(4When the collateral is not in the secured partys possession, there must be a written security agreement (a) describing the collateral in such a way that it can be reasonably identified and (b) signed by the debtor.

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