In doing business, it is important to be able to acquire business loans and to be confident a debtor will repay a loan. Secured transactions are agreements between debtors and creditors. Status as a secured creditor gives creditors priority in property that they have a security interest in if the debtor becomes insolvent. Unsecured creditors, in contrast, have no priority. They must seek relief through the judicial system, which can take a long time and be expensive. The Uniform Commercial Code (UCC) is a group of laws that regulate business and commercial transactions and has the effect of law if adopted by a state.
At A Glance
- A secured transaction is one in which a debt is guaranteed by a debtor's personal property, usually through a security agreement.
- Some security interests can also arise without a security agreement, such as in the case of a purchase-money security interest.
Secured creditors have priority over other creditors with regard to the property they have a security interest in.
Unsecured creditors have no priority and are only entitled to take what is left after secured creditors have been satisfied.