Value Tracing Concepts

Question 1

What are proceeds?

Answer 1

UCC § 9-102(a)(64)
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral;
(B) whatever is collected on, or distributed on account of, collateral;
(C) rights arising out of collateral;
(D) to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the collateral; or
(E) to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral.

Question 2

What does “collateral mean” and what is included in it?

Answer 2

9-102(a)(12) “Collateral” means the property subject to a security interest or agricultural lien. The term includes:
(A) proceeds to which a security interest attaches;
(B) accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
(C) goods that are the subject of a consignment.

Question 3

How are proceeds included in a security agreement?

Answer 3

Proceeds are automatically included in a security agreement without needed to be specified.

Question 4

What are other items that arise out of collateral and how are they included in a security agreement?

Answer 4

Other items such as: 
products,
offspring,
substitutions, 
additions, or 
replacements 

must be specifically included in the security agreement to be collateral.

Question 5

What is an after acquired property clause and how does it affect the creditor?

Answer 5

Once a debtor is in bankruptcy, the secured creditor can no longer pick up additional collateral by means of an after-acquired property clause.
• Bankruptcy allowed a secured creditor to trace collateral value from one form to another, but he cannot convert the unsecured portion of its claim to a secured position by claiming additional assets.
• Proceeds are not included in after-acquired property and can be secured if traced.

Question 6

What are proceeds of services?

Answer 6

Nothing can be proceeds of services.
• Proceeds earned through services are not automatically added as collateral.
• Could be included through “accounts” or “accounts receivable” if the money goes into those funds under the UCC.
• However, Bankruptcy code does not allow this to become collateral because it is considered after-acquired property.
○ Combined goods and services - if products are purchased and used as part of the service, proceeds equal to the value of those goods (if purchased using secured collateral) can be considered collateral.

Question 7

How can a debtor in bankruptcy use cash collateral?

Answer 7

The debtor must get permission of the court through a cash collateral hearing.

Question 8

What are Bankruptcy’s views towards the UCC?

Answer 8

Bankruptcy tries to accommodate the UCC, unless there are strong bankruptcy reasons to handle something differently.