Don't Lose Your Priority By Failing to File a Continuation Statement

By creating and perfecting a security interest in a debtor's collateral, a creditor creates priority in the collateral in case of default over other interested parties such as: unsecured creditors, subsequent secured creditors, judicial lien creditors, and the powerful trustee in bankruptcy. For most collateral, simply filing a proper financing statement (such as a UCC-1 financing statement) is the easiest way to perfect a security interest.

However, filings do not last forever. Rather, for most types of collateral, the filing of a proper financing statement will maintain perfection of the security interest for five years. U.C.C. § 9-515(a). A creditor can file a continuation statement to maintain perfection, but this can only be done within "six months before the expiration" of the initial filing. U.C.C § 9-515(d). This continuation statement maintains perfection for an additional five years from the day the original financing statement was set to lapse. U.C.C. § 9-515(e).

By failing to file a continuation statement, the perfection lapses and the security interest becomes unperfected. U.C.C. § 9-515(c). This becomes problematic if there are junior creditors secured by the same collateral on the date perfection lapses, as they now have priority over the once perfected senior creditor. Therefore, it is crucial for secured parties to be aware of their lapse dates and file continuation statements within the six-month window.

Taylor Dunham and Rodriguez LLP provides the aggressive representation needed to represent creditors. If you are a creditor in need of legal assistance, do not hesitate to contact Taylor Dunham Rodriguez LLP today.

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