Secured Transactions

Question 1

This is a word for personal property/possessions other than real estate

Answer 1

Chattels

Question 2

Secured transactions are when debt is secured by ____

Answer 2

Chattels

Question 3

This is a creditor who advances money or credit to enable a debtor to obtain collateral and then the creditor takes a security interest in that collateral

Answer 3

a Purchase Money Security Interest (PMSI) Creditor

Question 4

a Non PMSI creditor gives you a loan and takes a security interest in what?

Answer 4

EXISTING collateral, not the item purchased with the loan

Question 5

This is when a creditor takes as collateral property to be acquired by the debtor at later date

Answer 5

After Acquired Property Clause

Question 6

an After Acquired Property Clause is used most often with ______ & ________

Answer 6

Inventory

Equipment

Question 7

_________ creates a secured transaction

Answer 7

Attachment

Question 8

What are the 3 elements of attachment? (DR AV)

Answer 8

D - Debtor must have Rights in the collateral
A - Agreement between creditor & debtor (written/oral)
V - Value must be given by the creditor to the debtor

Question 9

When can an agreement be oral?

Answer 9

Only if the creditor takes possession with the debtor’s agreement (pledge)

Question 10

T/F

When the agreement is written it must be signed by both the debtor and the creditor

Answer 10

FALSE

It need only be signed by the debtor

Question 11

T/F

Attachment can occur if at least 2 of the 3 elements have been met

Answer 11

FALSE

All three elements must be met

Question 12

________ is the creditor’s rights vs. subsequent 3rd parties. It means that the 1st creditor gives notice to all other creditors that he has 1st rights to the collateral.

Answer 12

Perfection

Question 13

If a creditor is unperfected, then the creditor is _____

Answer 13

Unprotected

Question 14

What are the three ways for a creditor to be perfected?

Answer 14

1) Perfection by creditor taking possession of collateral
2) Perfection by filing a financing statement
3) Perfection by attachment

Question 15

What is the only way to perfect with negotiable instruments, stocks, or bonds?

Answer 15

Perfection by creditor taking possession of collateral

Question 16

What is the only way to perfect with accounts receivable? Why?

Answer 16

Filing a financing statement

Because A/R is intangible so the creditor cannot take possession of the collateral

Question 17

What must be included in a financing statement?

Answer 17

1) Names and addresses of parties
2) General description of collateral
3) Signature of debtor

Question 18

What perfection method can only occur with PMSI Creditors in consumer goods?

Answer 18

perfection by attachment

Question 19

One who perfects by attachment beats ______

Answer 19

All other creditors

Question 20

One who perfects by attachment loses ______

Answer 20

collateral to any consumer purchaser (innocent purchaser who has no idea of an attachment) who purchases the collateral from the debtor

Question 21

How can a creditor protect against losing collateral to an innocent purchaser when they are perfected by attachment?

Answer 21

They can protect against the loss by filing a financing statement

Question 22

Usually a perfected creditor beats a purchaser from debtor. What are the 2 exceptions?

Answer 22

1) One who perfects by attachment loses to purchaser without notice (filing a financing statement)
2) One who buys from a merchant in ordinary course of business takes free of all security interests

Question 23

T/F

When one buys from a merchant in ordinary course of business, they take free of all security interests unless they had notice of the security interest

Answer 23

FALSE

When one buys from a merchant in ordinary course of business, they take free of all security interests EVEN IF they had notice of the security interest

Example: When I buy from Macy’s, Macy’s creditors can’t pursue me if Macy’s defaults, no matter what.

Question 24

Usually the first creditor to file or perfect wins (1st in time, 1st in line). What are the 2 exceptions?

Answer 24

1) PMSI creditor in non-inventory collateral has priority if they file within 20 days of the debtor getting possession, even if a Non-PMSI files a financing statement first
2) PMSI creditor in inventory collateral has priority if before the debtor gets possession they file and give written notice to creditors ahead of him

Question 25

When a PMSI creditor in non-inventory collateral is trying to gain priority in perfecting, the must file within ______ of the debtor getting possession

Answer 25

20 days

Question 26

T/F A PMSI creditor in non-inventory collateral cannot gain priority in perfecting if a non-PMSI files a financing statement first

Answer 26

FALSE PMSI creditor in non-inventory collateral has priority if they file within 20 days of the debtor getting possession, even if a Non-PMSI files a financing statement first

Question 27

T/F A PMSI creditor in inventory collateral can get priority in perfecting as long as they give notice to the other creditors

Answer 27

FALSE PMSI creditor in inventory collateral has priority if BEFORE the debtor gets possession they file AND give written notice to creditors ahead of him

Question 28

What are the 3 remedies of a creditor after the debtor defaults?

Answer 28

1) Repossess the collateral 2) Strict Foreclosure 3) Sue the debtor

Question 29

When a creditor peacefully repossess the collateral and puts it up for sale at a public sale, the creditor (can/cannot) ______ bid on the collateral to get it back

Answer 29

CAN

Question 30

When a creditor peacefully repossess the collateral and puts it up for sale at a private sale, the creditor (can/cannot) ______ bid on the collateral to get it back

Answer 30

CANNOT

Question 31

T/F After a creditor peacefully repossess the collateral and sells it, the debtor is liable for any deficiency but isn't entitled to any surplus

Answer 31

FALSE They are liable for any deficiency but also are entitled to any surplus

Question 32

This is the remedy of a creditor after the debtor defaults where the creditor keeps the collateral but cancels the debt

Answer 32

Strict Foreclosure

Question 33

T/F In a strict foreclosure, the creditor must get an appraisal on the collateral and then considers that amount against the debt - the debtor is liable for any deficiency and is entitled to any surplus

Answer 33

FALSE In a strict foreclosure the creditor keeps the collateral and must cancel the ENTIRE debt

Question 34

If the debtor or other creditors with to object to a strict foreclosure, how much time do they have to make their objections known?

Answer 34

21 days

Question 35

T/F The debtor or other creditors can force a creditor to sell the collateral instead of choosing the strict foreclosure remedy

Answer 35

TRUE Note that the debtor and other creditors must voice this within 21 days

Question 36

If the debtor has paid __% or more of the price of consumer goods, the creditor must sell unless the debtor specifically waives this right

Answer 36

60%

Question 37

This remedy is often used if collateral is insufficient to pay the debt owed

Answer 37

Suing the debtor. This is called a deficiency judgment

Question 38

A trustee may set aside transfers made within ___ prior to the filing of the bankruptcy petition if these transfers were made with intent to _____ any creditor.

Answer 38

One year Hinder, delay, or defraud any creditor

Question 39

T/F When a trustee sets aside transfers made within one year prior to the filing of the bankruptcy petition, the trustee must first consider the solvency of the debtor at that time

Answer 39

FALSE The debtor need not be insolvent at the time of transfer

Question 40

A trustee may also set aside transfers made within one year prior to the filing of the bankruptcy petition if the debtor received ________ value in exchange for such transfer or obligation and the debtor was ______ at the time or ______ as a result

Answer 40

Less than a reasonably equivalent value Insolvent at the time or became insolvent as a result

Question 41

A trustee may set aside preferential transfers of nonexempt property to a creditor made within ____ prior to the filing of the petition. What is the exception?

Answer 41

90 days Up to 1 year for preferential transfers made to insiders

Question 42

This action is made for preexisting debts that enable the creditor to receive more than s/he would have otherwise under a Chapter 7 liquidation proceeding

Answer 42

Preferential Transfers

Question 43

What is a contemporaneous exchange?

Answer 43

An exchange between a creditor and debtor whereby the debtor receives new, present (i.e. contemporaneous) value.