Practitioners may have a tendency to think of Uniform Commercial Code Article 9 as applicable just to secured financings. But as many of us are often reminded, Article 9 also governs sales of certain assets. UCC §9-109 details the different types of transactions that are subject to the purview of UCC Article 9. Among those are sales of accounts, chattel paper, payment intangibles and promissory notes.

Although sales and secured loans are both subject to UCC Article 9, it can be difficult at times to tell which is which. This is a distinction with a difference, however, because, unlike assets pledged as collateral, assets that are sold will not be included in a bankrupt debtor’s estate. As such, after a bankruptcy petition is filed, a creditor in a secured loan transaction will be subject to the automatic stay and its claim on the underlying assets may be junior to those of other creditors. A buyer in a true sale, on the other hand, is not subject to these bankruptcy risks because it owns the assets outright.

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