Tuesday, August 28, 2007


Peters Co. repairs computers. On February 9, 19X1, Stark Electronics Corp. sold Peters a circuit tester on credit. Peters executed an installment note for the purchase price, a security agreement covering the tester, and a financing statement that Stark filed on February 11, 19X1. On April 13, 19X1, creditors other than Stark filed an involuntary petition in bankruptcy against Peters. What is Stark's status in Peters' bankruptcy?

A. Stark will be treated as an unsecured creditor because Stark did not join in the filing against Peters.
B. Stark's security interest constitutes a voidable preference because the financing statement was not filed until February 11.
C. Stark's security interest constitutes a voidable preference because the financing statement was filed within ninety days before the bankruptcy proceeding was filed.
D. Stark is a secured creditor and can assert a claim to the circuit tester that will be superior to the claims of Peters' other creditors.


Ragin' Cajun said...


By filing a financing statement within ten days of obtaining a purchase money security interest, Stark has perfected a secured interest in the circuit tester that is superior to all other claims. Whether a creditor is secured or unsecured has nothing to do with that creditor's participation in a bankruptcy filing. The security agreement and subsequent filing were all a part of a contemporaneous exchange, so the filing is not considered an attempt to gain a preference on an antecedent debt, and is not a voidable preference.

TraderCaddy said...

From what I remember in my commercial transactions class that I took in law school 30 years ago, you are correct. Further, I know a transfer of property from the debtor to a third party within four months (I don't remember it being 90 days) is a preferential transfer that the Debtors estate can get back. Since this only involved the filing of a UCC-1 financing statement and not the transfer of property it would not apply. Also, the filing of the financing statement is only notice to third parties of the secured creditors interest and not the transfer of ownership or title to the property.