What is Perfection of a security interest?
In short
Perfection is the step that makes a creditor's security interest in collateral effective against other creditors and a bankruptcy trustee. It is usually achieved by filing a financing statement, taking possession of the collateral, or control.
Key takeaways
- A purchase-money security interest in consumer goods is perfected automatically when it attaches.
- Among perfected interests, the first to file or perfect generally has priority.
- Attachment (an agreement, value given and the debtor's rights in the collateral) must happen first.
Where it's tested
REG: Debtor-Creditor & Bankruptcy — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A creditor takes a purchase money security interest in equipment and files a financing statement 15 days after the debtor receives possession. An earlier creditor had already perfected a security interest covering all of the debtor's equipment. Who has priority in the new equipment?