In this video, 20.01 – Secured Transactions – Lesson 1, Roger Philipp, CPA, CGMA, discusses the three ways for a creditor to protect their interest in money loaned to a debtor: by obtaining a security interest called collateral, by obtaining a guarantor, or by forcing the debtor into bankruptcy and hoping to get paid as either a perfected secured creditor or a general unsecured creditor.
Secured transactions involving tangible and personal property, as governed by Article 9 of the Universal Commercial Code, are the topic of this lesson. Roger differentiates between money loaned for the purchase of inventory, for the purchase of equipment, and the purchase of consumer goods, explaining how a TV could be any one of these depending on the borrower. Roger ties back this topic to prior learning by relating these categories to ordinary assets, Section 1231 assets, and capital assets. All these categories – inventory, equipment, and consumer goods – can be types of collateral. We learn that when the creditor lends the debtor money to buy an asset, that asset legally becomes collateral.
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Video Transcript Sneak Peek:
Welcome, welcome, let’s talk about a fun and exciting area called secure transactions. Many of the topics that we’re gonna deal with deal with both the creditor and the debtor. So let’s say for example I loan money to you, right? I loan money to you, I’m gonna protect my interest, there’s three different ways we’re gonna look at in the next several chapters on how to protect myself, how to get my money back.
So I loan you money, one way is I take an asset as collateral; I secure the transaction. That’s what this chapter talks about. Another way is I say I’ll loan you money, but go get a co-signer guarantor, a surety called suretyship. The third way, least desirable, is I’m gonna force you into bankruptcy and hopefully get paid as either a perfected secured creditor or a general unsecured creditor. So again, I loan you money, three ways to protect myself.
The creditor’s objective is to get that money back, collect the money. How do I do it? One way is to secure the transaction by getting collateral, that way you don’t pay me, I take your house, I take your car, I take your kids, I take your dog, and I eat it. Another way is get a co-signer guarantor, a surety. Third way, least desirable, force you into bankruptcy, chapter seven, 11, 13, which we’ll talk about in another section.
This section starts out with secure transactions, this is covered by UCC Article 9. So this is called secure transactions, UCC Article 9. So what we’re doing is basically the following: here is the creditor, the creditor is going to either loan you money or extend you credit to the debtor. What we’re gonna do is I loan you money and in return I’m gonna get a security interest in your property that we call collateral. Collateral damage, right? So I loan you money and I say here’s 0,000, what can you give me as collateral? I could take your car, I could take your jewelry, I could take a note, and I could take all these different things.
Now what we’re looking at is maybe I loan you money to buy inventory. Maybe I loan you money to buy equipment. Maybe I loan you money to buy consumer goods. So we’re all, we’re trying to see what it is you’re gonna give me as collateral. So again, I loan you money, three different ways to protect myself. I take something as collateral, I secure the transactions, but this section only deals with what? Personal property, tangible personal property.
Remember back in land and property we talked about a mortgage? A mortgage is when the bank loans you money and they take your house, your real property as collateral that was a mortgage. We’re not talking about real property, we’re talking about personal property, tangible personal property, that’s what this section is gonna be dealing with.
The other thing, I loan you money, I get someone to co-sign, if you don’t pay, I’ll take it from them, called a suretyship, a little later, you don’t pay, force you into bankruptcy. So that’s what we’re looking at in this section it says UCC Article 9, property, it covers personal property or fixtures, not real property, now let’s talk about the types of collateral.