Application 1: Security Interests In extending high-risk credit to individuals or businesses, it is often necessary for the lenders to have some means of protecting themselves from default or bankruptcy on the part of the debtor. One of the mechanisms that can help protect creditors from the effects of bankruptcy or default is the establishment of a security interest. In a 2- to 3-paragraph paper, respond to the following: How do you go about creating a security interest? Why would you even want to create a security interest? How do security interests facilitate businesses being able to borrow money? Lastly, why is perfection so important in connection with security interests? Your written assignments must follow APA guidelines. Be sure to support your work with specific citations from this week’s Learning Resources and additional scholarly sources as appropriate. Your task is to negotiate in reaching a mutually agreeable resolution that is fair to all and meets the requirements stated above to allow the airline to continue operations. You will use the following guidelines for your activity:

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Application 1: Security interests

A security interest arises when the borrower and the lender enter into an agreement that authorizes the lender to take collateral that the debtor owns if he/she is unable to pay the loan. There are four methods involved during the creation of a security interest. The first method includes the filing of a financing statement with commercial code filing office. Other methods include the procession of collateral by the lender, the secured party taking control over the collateral, and a mere attachment of the security interest (Herman, 2015).

A security interest is created to promote economic security. It promises the lender a promise of the repayment in case the borrower defaults on the loan. The secured person can be able to recoup the loan by taking the asset agreed upon as collateral and selling it. A security interest is, therefore, important because secured lenders can be able to secure their debts before the creditors without a security interest. Businesses can as well as individuals borrow money quickly when they enter into a security agreement with the creditors. The secured creditor can lend to any business because there is a promise of repayment through security interest (Herman, 2015).

Perfection involves registering of a security interest with the appropriate statutory authority (Schwartz,2011). This process allows the security interest to be legally enforceable any claim on the assets agreed-upon is given a high status. A perfected security interest prevails over a bankruptcy trustee and a judgment creditor. Perfection is, therefore, necessary because the security interest will not be subordinated to a bankruptcy trustee or a lien creditor (Gilmore, 2009).

References

Herman. (2015, May 18). About us: law 360. Retrieved from Law 360 websites: https://www.law360.com/articles/651272/creating-perfect-security-interests-a-primer

Gilmore, G. (2009). Security interests in personal property. The Lawbook Exchange, Ltd.

Schwartz, A. (2011). Bankruptcy priorities and Security Interests: About current theories.

The Article of Legal Studies, 10(1), 1-37.

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