Creditors Often Falsely Assert They Have A Security Interest In Your Property
Secured property is property that is put up as collateral for a debt. The most common types of secured property are cars and houses. You take out loans, which are secured by the car or house. If you don’t pay back the loan, the bank can take back the car or house through repossession or foreclosure.
But many creditors that aren’t loaning money for cars and houses also try to assert that they have a security interest in property. For example, many retailers will allege that if you don’t pay a retail credit card, they can repossess the property that was bought with that card.
Why Security Matters
This matters because secured creditors get more protection in bankruptcy than unsecured creditors, like credit cards or medical debts get.
Secured creditors get to take back property, and sell it for its value, even if you file for bankruptcy. That means that a lot of lenders who have no legitimate security try to say that they have security in your property, so that they get preferential treatment, and so they get access to your property that they wouldn’t otherwise get when you file for bankruptcy. They want to be able to take and then sell the property you purchased with their credit.
UCC Requirements Must be Met
The problem is that if a creditor says that they have a secured interest in your property, they have to do more than say it. The Uniform Commercial Code (UCC) has strict requirements about how a lender “perfects” its interest in your property, so that it can be considered a secured creditor.
The UCC says that to perfect a security, the debtor has to be given a clear statement that the debtor is giving the property as security, and the security agreement (which can be electronically signed) has to also have a clear statement of the property that is being secured. The description doesn’t have to be as detailed as naming the model and make of every item you’re buying on credit but it does have to be more specific than “all the debtor’s property,” or similar all encompassing and very generic terms.
The creditor also has to file a financing statement to put the public on notice of the creditor’s superior, secured interest in the property.
False Security Claims
Many companies don’t bother with these formalities. They may flash a security interest agreement on a keypad when you check out of a store. In many cases, these creditors have tried to object to debtor’s discharges, on the basis that they are a secured creditor. When that happens, these creditors need to be told to back down, their objection to discharge must be challenged, and possibly, lawsuits may have to be filed against them for trying to assert a security interest in property that they have no right to be asserting.