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    ST Assign 11 Supplemental Outline

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    pcessweetie8
    The document outlines how the Bankruptcy Code impacts secured transactions involving after-acquired property and proceeds. [1] It states that after-acquired property clauses are invalid in bankruptcy, so a secured creditor cannot acquire additional collateral this way. [2] However, value-tracing rules generally still allow a security interest to attach to proceeds of original collateral, such as when inventory is sold for accounts or the accounts are paid in cash. [3] The basic impact is that a secured creditor can keep the collateral value as of bankruptcy through proceeds but cannot obtain more collateral through an after-acquired property clause.

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    ST Assign 11 Supplemental Outline

    Uploaded by

    pcessweetie8
    197 views2 pages
    The document outlines how the Bankruptcy Code impacts secured transactions involving after-acquired property and proceeds. [1] It states that after-acquired property clauses are invalid in bankruptcy, so a secured creditor cannot acquire additional collateral this way. [2] However, value-tracing rules generally still allow a security interest to attach to proceeds of original collateral, such as when inventory is sold for accounts or the accounts are paid in cash. [3] The basic impact is that a secured creditor can keep the collateral value as of bankruptcy through proceeds but cannot obtain more collateral through an after-acquired property clause.

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    The document outlines how the Bankruptcy Code impacts secured transactions involving after-acquired property and proceeds. [1] It states that after-acquired property clauses are invalid in bankruptcy, so a secured creditor cannot acquire additional collateral this way. [2] However, value-tracing rules generally still allow a security interest to attach to proceeds of original collateral, such as when inventory is sold for accounts or the accounts are paid in cash. [3] The basic impact is that a secured creditor can keep the collateral value as of bankruptcy through proceeds but cannot obtain more collateral through an after-acquired property clause.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    197 views2 pages

    ST Assign 11 Supplemental Outline

    Uploaded by

    pcessweetie8
    The document outlines how the Bankruptcy Code impacts secured transactions involving after-acquired property and proceeds. [1] It states that after-acquired property clauses are invalid in bankruptcy, so a secured creditor cannot acquire additional collateral this way. [2] However, value-tracing rules generally still allow a security interest to attach to proceeds of original collateral, such as when inventory is sold for accounts or the accounts are paid in cash. [3] The basic impact is that a secured creditor can keep the collateral value as of bankruptcy through proceeds but cannot obtain more collateral through an after-acquired property clause.

    Copyright:

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    Download as DOC, PDF, TXT or read online from Scribd
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    of 2

    Secured Transactions

    Supplemental Outline for Assignment 11

    I Procedural Introduction. This outline covers the key principles I want you to understand from
    Assignment 11. You are not responsible for anything relating to Assignment 11 other than what is
    in this outline. Thus, for example, you need not read any of the statutes or pages from LoPucki &
    Warren cited herein.
    II Substantive Introduction.
    A Assignment 9 explained, among other things, that security interests may attach to after-
    acquired property under Article 9. See UCC § 9-204(a) (“[A] security agreement may create
    or provide for a security interest in after-acquired collateral.”).
    B Assignment 10 explained “value-tracing rules” under Article 9. See, e.g., UCC §§ 9-102(a)
    (64) (defining proceeds); 9-203(f) & 9-315(a), (b) (together providing that security interests
    continue in proceeds).
    C When a debtor declares bankruptcy, however, there are some changes. The Bankruptcy Code
    modifies the rules.
    III The Bankruptcy Code’s Impact on After-Acquired Property and Value-Tracing Rules.
    A After-Acquired Property Clauses are Invalid in Bankruptcy: After-acquired property
    clauses have no impact after the debtor declares bankruptcy. See 11 U.S.C. § 552(a); L&W p.
    182. As a result, once the debtor is in bankruptcy, the secured creditor can no longer pick up
    additional collateral by means of an after-acquired property clause.
    B Value-Tracing Rules Generally Still Apply: In bankruptcy, a security interest generally
    still attaches to proceeds, products, offspring, rents and profits of collateral if the security
    interest would have attached to such proceeds, products, offspring, rents or profits under the
    security agreement and non-bankruptcy law (i.e., Article 9). See 11 U.S.C. § 552(b).
    1 Qualification: A bankruptcy court can limit the right to proceeds based on the equities
    of the case. Hence my use of the word “generally.” However, I will leave this issue to
    the bankruptcy course.
    C Example:
    1 Facts: Suppose a security agreement says that the secured party has a security interest
    in “all inventory and after-acquired inventory of the debtor.” Debtor declares
    bankruptcy. Then Debtor sells some inventory in exchange for accounts – i.e., its
    customers’ promises to pay for the inventory. Result: The accounts would be proceeds,
    and thus the security interest would attach to the accounts.
    2 Facts: Subsequently, the customers pay the debtor cash to extinguish the accounts.
    Result: The cash would be proceeds of the accounts, and thus the security interest
    would attach to the cash.
    3 Facts: Then, the debtor uses the cash to buy inventory. Result: This new inventory is
    proceeds of the cash, and thus the security interest would attach to the new inventory.
    a Important: The security interest attaches to the new inventory because it is
    proceeds, NOT because it is covered by the after-acquired property language
    in the contract.
    4 Facts: At last, the debtor obtains a new loan from another party and buys additional
    inventory with that loan. Result: This second set of inventory is after-acquired
    1
    property, but not proceeds. Therefore, the security interest would not attach to the
    second set of inventory because after-acquired property clauses are invalid in
    bankruptcy.
    D Basic Impact of Bankruptcy Code Rules: The basic result flowing from the nullification of
    after-acquired property clauses and the continued allowance of value-tracing is this: the
    secured creditor generally can keep what collateral value it has as of the filing of the
    bankruptcy case, even if that collateral value is transformed [i.e., value-tracing allowed], but
    cannot acquire additional collateral value during bankruptcy [i.e., after-acquired property
    clauses invalid].
    1 In essence, value tracing is the only way a security interest may attach to different
    collateral after the debtor declares bankruptcy.

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