Assignment # 1
DIFFERENCE BETWEEN UNSECURED AND SECURED CREDITORS
1) Consider why secured credit exists.
a) To obtain an interest in property
b) Ways to obtain an interest
i) Consensual lien
ii) 9-102(52): definition of a lien creditor
c) Judicial lien: must convert property to money by selling it for cash. To collect, an unsecured creditor must hire a lawyer and litigate the case: sue on the promissory debt and collect a judgment. Sheriff will seize and sell property to pay the debt. The seller will then have a judicial lien on the property. Judgment may include current property as well as attorney fees.
d) Statutory lien: statute that give creditor a lien in the property of the debtor. If you have it, then the lien just exists. Must have a statute to give the lien.
e) Secured Creditor can only obtain the amount of the debt in the collateral. If debt is more than value of the collateral, secured creditor is left with a partially unsecured debt. If the value of the collateral is greater than the debt, the secured creditor can only obtain the amount of the debt.
2) What is the difference between a secured creditor and an unsecured creditor?
a) Unsecured creditor: Based on borrower’s cash flow and creditworthiness. Unsecured creditors face the risk that the borrower’s financial situation may deteriorate. Must go to court to get judgment.
b) Secured creditor: Lender takes a first security interest in borrower’s assets, like equipment, real estate. Amount of loan may be based on value of asset.
3) What is the impact of K.S.A. § 60-2304?So-called state exemption laws specify what property that is not subject to seizure by a creditor in the enforcement of a money judgment obtained in a civil law suit on an unpaid debt. Normally these exemptions do not affect enforcement of security interests or statutory liens.
4) Compare 60-2301 with 60-2304. See particularly subsection c.
a) Kan. Stat Ann. § 60-2301. Homestead; extent of exemption.
i) Valid mortgage against home, it’s not exempt from seizure and sale. This exemption has been waived by the mortgage.
ii) 60-2301 doesn’t say anything about security interests or judicial processes.
iii) Consensus: valid security interest isn’t subject to the statute.
b) Kan. Stat. Ann. § 60-2304 Personal property; articles exempt.
i) Exempts certain property from seizure and sale upon attachment
(1) This includes a car
ii) What if a security agreement is signed?
(1) Statute says that certain property is exempt from attachment issued by any court. If a security agreement is signed, then creditor doesn’t have to use judicial process to obtain the car. Therefore, a security agreement can get around 60-2304.
5) Read carefully UCC § Rev 1-201(35) first sentence only. Security Interest: means an interest in personal property or fixtures which secures payment or performance of an obligation.
6) Under Article 9 a secured creditor can obtain a security interest in almost everything a non-consumer debtor owns to secure debtor’s promise to pay. If debtor goes into bankruptcy a perfected secured creditor can take all the assets of debtor leaving
subsection (e), a person becomes a line creditor before the earlier of the time (A) the security interest or agriculture lien is perfected
3) Attachment and Perfection. p.21
a) Attachment is defined in 9-203(a)(b)(1-3(A & B))
4) Attachment: security interest attaches to collateral when it becomes enforceable against the debtor. This usually occurs when the debtor and secured party have interest into a security agreement and the secured party has given vale to the debtor, either by making a loan or selling property on credit to the debtor. 9-203(a)
a) Enforceability: except as otherwise provided, a security interest is enforceable against the debtor and third parties with respect to collateral only if:
i) (1) value has been given
ii) (2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party and
iii) (3) one of the following conditions is me:
(1) (A) Debtor has authenticated a security agreement that provides a description of the collateral and if the security interest covers timber to be cut, a description of the land concerned;
(B) the collateral is not a certified security and is in the possession of the secured party under section 9-313 pursuant to the debtor’s security agreement.