UCC Financing Statement (usually called a UCC-1 Form) is a form that creditors file with states in which they have a security interest in a debtor’s personal property. The financial statement serves a similar purpose as recording a deed for real property: registering debt with a state so other creditors and the government can track legitimate security interests in property. Creditors negotiate with debtors to have senior security interests, and with limited exceptions, creditors that file a UCC-1 Form and related documents will rank above other creditors in accessing assets should the debtor become insolvent. However, if they do not file a financial statement, another creditor may negotiate and register a security interest on the same property. In which case, the new creditor likely will rank above the old creditor because there was no warning to the new creditor about the pre-existing security interest. Most states require the same form with limited variations and typically require basic information about the debt including the parties, amounts, contact information, and sometimes extra documentation. New York uses an old UCC-1 Form that has quite a few differences from all other states, however, such as requiring more information on the form and information in an addendum.
Under Article 9 of the UCC, the steps of a secured transaction are 1) getting collateral, 2) attachment, and 3) perfection and priority. Filing UCC Financing Statement is one requirement of the perfection step. Perfection determines which party has priority in the collateral, and gives notice to the public who has secured interests in the collateral and who claims first. However, if a security interest wasn’t attached first, it cannot be perfected. Since the attachment clarifies that the debtor has rights to the collateral, the creditor has extended value to the debtor, and they have a security agreement or authenticated record defining the collateral, without it the creditor’s rights in the debtor’s collateral cannot be enforceable against the debtor and third parties. Once attached, the creditor should choose the following ways to perfect their secured interest.
Perfection can be obtained through the UCC Financing Statement, purchase money security interests (PMSI), and through possession/control.
UCC Financing Statement:
- Perfection can be obtained by a creditor by filing a UCC Financing Statement with the Secretary of State. A qualified financing statement should include:
- Debtor and secured party’s name,
- Collateral describing, and
- A creditor or other person authorized by the debtor in their security agreement files it.
If there are some errors or omissions that do not comply with the above requirements, the financing statement may still be effective unless such mistakes make the statement substantially deviating and seriously misleading. For example, a financing statement that did not provide the name of the debtor was presumed to be misleading unless the debtor’s correct name was available in the Secretary of State’s office.
Purchase money security interests (PMSI)
- PMSI means the debtor still has rights to the collateral when a creditor extends the value of the collateral. Article 9 of the UCC gives special protection of PMSI of consumer goods (i.e., goods purchased mainly for personal or family purposes) to creditors to encourage lending to consumers.
- Thus, filing a financing statement is not required for PMSI of consumer goods, for it is automatically perfected.
- For non-consumer goods of PMSI, the creditor still needs to fill out the financing statement. If they file it “before or within 20 days after the debtor receives delivery of the collateral, then the security interest takes priority over conflicting interests which arise between the time the security interest attaches and the time of filing.”
Possession or control:
- Perfection can also be obtained by possessing or controlling the collateral.
[Last updated in June of 2022 by the Wex Definitions Team]