REG 20 - Secured Transactions

Question 1

What is attachment?

Answer 1

Process by which a creditor can repossess and sell collateral when a debtor stops payment.

Question 2

What is the mnemonic for attachment and what does it mean?

Answer 2

PIG-1. Property owned by debtor 2. Interest is created 3. Give value to the debtor

Question 3

What are examples of “Creating interest” in Attachment?

Answer 3

1. Taking possession, such as a pawn shop, or on layaway, OR2. Signed (by debtor) security agreement

Question 4

What is perfection?

Answer 4

Where a creditor provides notice to other creditors that a security interest exists.

Question 5

How is perfection performed?

Answer 5

Mnemonic FAT - By doing any ONE of the following 3 steps-1. File a financing statement2. Automatic perfection (PMSI automatically perfected)3. Take possession of the collateral

Question 6

What loophole exists in perfection?

Answer 6

In automatic perfection, if the debtor sells the goods to a third party in a good faith sale, third party retains ownership from creditor.

Question 7

How is the perfection loophole closed?

Answer 7

creditor must file a financing statement withing 20 days of attachment

Question 8

What are the three types of uses for secured goods, and which one cannot be automatically perfected?

Answer 8

Equipment, inventory, and consumer goods. Inventory cannot be automatically perfected.

Question 9

What is a PMSI?

Answer 9

Purchase money security interest- where the creditor gives the debtor money or credit to purchase collateral.

Question 10

What does DOTS mean in regard to a creditor protecting his interest from other parties?

Answer 10

DOTS represents the people that a creditor must protect himself from. D - Debtor, creditor needs only to attach. O - Other creditors, T - Trustee in bankruptcy, S - Subsequent purchaser from debtor in good faith transaction.

Question 11

How is attachment performed?

Answer 11

By performing ALL THREE steps represented by the mnemonic PIG

Question 12

According to the Bankruptcy Act, at what point in time is the filer considered Bankrupt?

Answer 12

90 prior to filing bankruptcy

Question 13

What are the elements of a preferential transfer of property?

Answer 13

I-WAIT - Insolvency at time of transfer, Antecedent debt(must be), Improves creditors position, Time increased from 90 days to 1 year if insider

Question 14

What types of transfers can a bankruptcy trustee void?

Answer 14

FLAP - Fraudulent transfers made within 2 years prior, Liens by statute(mechanics) effective on or after filing date, After petition transfers, Preferential transfer of property

Question 15

What types of transfers are non-preferential?

Answer 15

C-COGNAC - Charity, Consumer Debt<$650, Ordinary course of business, New value, Alimony & child support, Continuation of installment payments.

Question 16

What is the order of distribution of assets among creditors?

Answer 16

Secured, Priority, Unsecured/General

Question 17

What are included in Priority claims?

Answer 17

STOP-IT-Drunk driver - Support or alimony payments, Trustee and admin fees, Owed-after-petition-in-involuntary gap, Payroll(90 days) & employee benefit plans(180 days) up to $12, 475 each, Individual consumer deposits(consumer goods not delivered)<=$2775, Tax claim within prior 3 years.

Question 18

What does the word “discharge” mean in relation to bankruptcy?

Answer 18

A discharge is a release, meaning the debtor is released from having to pay that particular debt.

Question 19

How is the word “exemption” used in relation to bankruptcy?

Answer 19

Exemption means “exemption from discharge”, which means that the debt will not be excused, and the debtor will not be released from the money owed on that particular debt.

Question 20

What is the definition of a preference, or preferential transfer?

Answer 20

A transfer of property to a creditor within prior 90 days of filing to satisfy an antecedent (pre-existing) debt.