Secured Financing and Priorities among Creditors

Abstract

One of the principal advantages of a secured transaction is the protection it provides against the claims of competing creditors.A creditor asserting a security interest in his debtor's property is likely to find himself in competition with a wide assortment of other claimants.For example, his security interest may be challenged by another creditor with a consensual security interest, by a creditor with a judgment or execution lien, by a creditor claiming a right to the collateral under some general statutory entitlement such as a repairman's lien, by a seller to or a buyer from the debtor, or by the debtor's trustee in bankruptcy.To a considerable extent, the value of a security interest depends upon the degree to which it insulates the secured party from the claims of the debtor's other creditors.1 Article 9 of the Uniform Commercial Code contains detailed rules for resolving conflicts between secured creditors and various third parties-rules that tell the secured party what he must do in order to prevent his security interest from being overridden by a competing claimant, or, conversely, what a competitor must do in order to circumvent an existing security interest in the debtor's property.These rules are called "priority" rules since it is their function to determine