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Exam 25: Security Interests and Creditors Rights

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Question 31

True/False

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Federal law provides a minimal framework to protect debtors from losing all their income in order to pay judgment debts.

A) True
B) False

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Question 32

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Rollover Funds perfects a security interest in Steel Mill Inc.'s equipment by filing. When Steel Mill finally pays the debt, the debtor is entitled to the filing of

A) none of the choices.
B) a termination statement.
C) a confirmation request.
D) an amendment.

E) None of the above
F) A) and C)

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Question 33

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The method by which a secured party obtains a priority interest in a debtor's collateral is enhancement.

When a co-surety pays more than his or her proportionate share on a debtor's default, he or she is entitled to recover from the debtor the excess amount paid.

United Contractors Inc. holds a lien on Vista Estate's real property. This property can be sold to satisfy the debt if, before the sale, notice is given to

Auto Sales & Finance wants to get paid for its goods and services, so it will not sell goods or lend funds unless payment is guaranteed. This is the concept of

Petro Refinery asks Quality Bank for a loan to increase its inventory. Quality requires Rose, Petro's president, to sign a personal guaranty to pay the debt if Petro defaults. Rose is a guarantor. The guaranty is required to be in writing because

Every interest in personal property that guarantees the payment or performance of an obligation is a security interest.

A small-amount mechanic's lien typically stays on record until the property against which it has been filed is sold and then the lien is paid out of the sale proceeds.

Building Company adds a shipping dock to the property of Corporate Complex, but the owner does not pay. Building files a lien on Corporate's property. The property

When a debtor defaults, a secured creditor can take possession of the collateral without a court order and either retain or resell the collateral.

A buyer in the ordinary course of business takes goods subject to any security interest created by the seller because otherwise the free flow of credit would be hindered.

For most collateral, possession by a secured party is impractical because it denies the debtor the right to use or derive income from the property to pay the debt.

When a debtor defaults, a secured creditor can relinquish the security interest but cannot then seek a judgment on the underlying debt.

Any transaction in which the payment of a debt is guaranteed by personal property owned or held by the debtor is a secured transaction.

To create an enforceable security interest, the collateral must be in the possession of neither the debtor nor the secured party, but in escrow.

Rashi is a student at State University. In need of funds to pay for tuition and books, Rashi asks Tiempo Loans, Inc., for a short-term loan. The lender agrees to make a loan if Rashi will have someone who is financially responsible guarantee the loan payments. Umberto, a well-known businessperson and a friend of Rashi's family, calls Tiempo and agrees to pay the loan if Rashi cannot. Because of Umberto's reputation, the loan is made. Rashi is making the payments, but because of illness he is unable to work for one month. He asks Tiempo to extend the loan for three months. The lender agrees, raising the interest rate for the extended period. Umberto is not notified of the extension (and thus does not consent to it). One month later, Rashi drops out of school. All attempts to collect the remainder of the loan from Rashi fail. Can Tiempo assert a claim against Umberto on the debt?

Redevelopment Capital Inc. is the secured party in a secured transaction with Skyway Airport Corporation. Redevelopment Capital is also known as

Improper filing of a financing statement can render a security interest unperfected.

A debtor must have title to collateral to give a secured party a security interest in the property.