If everything goes as planned and you successfully pay back your loan, the lender must file a UCC-3 financing statement to terminate the UCC lien. If you’re worried about what defaulting on a business loan could mean for your business and think you might have to protect yourself against a lien, consult a lawyer with a background in asset protection. These rules usually protect a small amount of equity in your home, a single personal vehicle, retirement funds, and business equipment. That being said, most states have rules in place to protect a small portion of your personal assets from creditors, even if you have a UCC lien active. A creditor with a UCC lien against your assets could immediately come after things like: However if you’ve put up your assets as collateral in a UCC-1 filing, those protections go out the window. For example, creditors in most states aren’t entitled to take personal assets or money from your bank account in order to collect a debt. States usually have pretty strong protections in place for borrowers’ personal assets. The answer to this one will depend on which state you’re in. When a lender files a UCC-1 with the applicable governmental authority-usually their state’s Secretary of State-they’re doing what lawyers call “perfecting” their security interest in the collateral.Ī “perfected” UCC lien becomes public record, meaning that other potential lenders can look it up and recognize that lender’s claim on the collateral outlined in the filing.īecause of the UCC and UCC-1 financing statements, it’s easy for potential lenders to look a business up and see if it has any UCC liens filed against it before they agree to a loan of their own. The Uniform Commercial Code (UCC) is a series of laws that most states have adopted to make sure that lenders and borrowers who do business across state lines have some kind of legal protection. Before UCC-1 filings came along, people could put the same asset up as collateral for as many loans as they wanted, because there was no way for lenders to look up if the asset was already part of a loan agreement. States used to have vastly different rules around commercial sales, leases, and financial agreements. Types of assets that could be included in a UCC blanket lien include: Instead, the creditor will usually list which types of assets they’re interested in including in the blanket lien within the collateral section of the UCC-1 financing statement. That might sound scary at first, but it’s rare that a blanket lien will ever actually cover every single one of your assets. Watch out for blanket liens-if you sign off on one of these, you’re giving the creditor the right to all of your business’ assets. That way if you default on the loan, XYZ bank will be able to seize and sell your houseboat in order to recover some of the money they lost in the default. These are common for situations where you’ve borrowing money to buy a specific piece of real estate, equipment, or a vehicle.įor example: if you borrow money from XYZ Bank to pay for a new houseboat, XYZ Bank will likely file a specific collateral lien against that houseboat and list it as collateral in the loan agreement. These agreements put a lien on one or more specific assets you own. UCC liens come in two varieties: specific collateral and blanket. The difference between specific collateral liens and blanket liens
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