Perfecting a Security Interest

Legal Guidance for Commercial Debt Collections in New York and Beyond

Under Article 9 of the UCC, lenders and suppliers of goods can establish security interests in a debtor's assets, which then serve as collateral for loans. The collateral may include personal property, like inventory, fixtures, and accounts receivables. The security interest gives the creditor extra protection in case the debtor fails to repay a loan. As a secured creditor, you stand a greater chance of obtaining repayment in case a debtor becomes insolvent or goes bankrupt. Generally, bankruptcy courts will enforce a perfected security interest, while any unperfected security interest is subordinate to a perfected interest. Perfecting a security interest is a critical way to ensure that a business can collect its debts. The commercial debt collections attorneys at Klapper & Fass can guide clients in New York and other states through this process.

Perfecting a Security Interest

Perfecting a security interest gives constructive notice to later creditors and purchasers that you have a prior interest in property. When there are multiple security interests attached to a piece of property, whichever creditor has perfected first has priority. Thus, it can be important to perfect your security interest as soon as possible, rather than waiting until a debtor encounters financial distress. If you wait, there may be multiple perfected security interests ahead of you in line, and you may be less able to recover.

The most common way to perfect your security interest is to complete and file a financing statement. In New York, section 9-501 governs the place where the completed financing statement should be filed. The office in which you should file a financing statement to perfect a security interest in fixtures or a cooperative interest, or an agricultural lien in extracted collateral or timber, is the office that has been designated for filing a record of a mortgage on related real property. In other cases, the financing statement is filed in the office of the Secretary of State.

A financing statement must include the debtor's name, mailing address, status as an individual or organization (including the type of organization, jurisdiction, and organizational number), the name and mailing address of the secured party or its representative, and a description of what collateral the financing statement covers.

Article 9 of the UCC requires creditors to make sure that the financing statement includes the precise legal name of the debtor. Anybody searching for filed financing statements will search for them using the debtor's name. If the financing statement is filed under an inaccurate name, notice of a prior security interest may not be given to others, with the result that there would be  no way to determine a prior, perfected security interest.

Consult an Experienced New York Attorney for Your Litigation Needs All commercial creditors need to be able to collect outstanding debts in order to stay afloat financially. Perfecting security interests can help you protect your business. The New York lawyers at Klapper & Fass can assist creditors with these efforts or with litigation if appropriate. We serve the five boroughs of New York City from our offices in Manhattan and White Plains. Our attorneys also provide legal services in Rockland, Orange, Suffolk, Dutchess, Nassau, and Westchester Counties, as well as in states such as Texas and Connecticut. Contact our office at 914.287.6466 or via our online form to schedule a free consultation.