REG, Regulation

Sources for Debtor-Creditor Relations: Suretyship and Secured Transactions

Last reviewed 2026-09-14

The standards and authorities behind PocketCPA's REG lessons on Debtor-Creditor Relations: Suretyship and Secured Transactions. The topic rests on UCC Article 9, the common law of suretyship, and the Bankruptcy Code (11 U.S.C.).

About this topic

When a debtor cannot pay everybody, three separate bodies of law decide who actually collects. Each of them answers by a different route. Suretyship adds a second person the creditor may pursue. Article 9 of the Uniform Commercial Code ties a creditor to one particular asset, then ranks that creditor against everybody else who wants the same thing. The Bankruptcy Code gathers whatever the debtor still holds, pays it out in a fixed statutory order, and decides which of the unpaid debts survive the case.

Very little here is graded as a definition. What is graded is a date, a dollar figure or a rank. The fact patterns are arithmetically clean and sit one step from the obvious answer. A question supplies three dated events out of order and asks when the security interest attached. It supplies a home, two liens and an exemption and asks how much of the judicial lien survives. It satisfies four of the five preference elements and then fails the fifth on a fact buried in the collateral. The costliest habit is reading the collateral for what it is rather than for how the debtor uses it. A tractor is equipment, inventory or a farm product depending on who holds it and why, and each answer routes to a different priority rule.

Key points

• A surety is liable upon the principal debtor's default; a guarantor's liability is secondary and requires notice of default.
• Article 9 of the UCC governs secured transactions; a security interest attaches when there is value, rights in the collateral, and a security agreement.
• Perfection gives priority over other creditors and is typically achieved by filing a financing statement.
• A purchase money security interest (PMSI) has priority over other perfected interests in the same collateral.

What the lessons cover

1. Suretyship and guaranty
2. The surety's rights and defenses
3. Article 9 attachment
4. Perfection and priority
5. Filing mechanics, lapse, and proceeds
6. Default and enforcement of a security interest
7. Bankruptcy: chapter choice, eligibility, and the estate
8. Exemptions and lien avoidance
9. Preferences: the Sec. 547 avoiding power
10. Fraudulent transfers: the Sec. 548 avoiding power
11. Priority distribution in a liquidation
12. Discharge and the guarantor's exposure

Authoritative references

Where these requirements sit in the literature.

• 11 U.S.C. Sec. 523(a)(2)(B) excepts from an individual debtor's discharge a debt for money, property, services, or credit that was obtained by use of a statement, and the subsection sets five elements that statement must satisfy. The first is the one the subsection turns on, because an oral misstatement of financial condition falls under Sec. 523(a)(2)(A) instead.
  • In writing.
  • Materially false.
  • Respecting financial condition, the debtor's or an insider's.
  • Reasonably relied on by the creditor.
  • Caused by the debtor to be made or published, with intent to deceive.
• UCC Sec. 9-203(b) carries attachment: value given, the debtor's rights in the collateral, and an authenticated security agreement describing it, with possession or control substituting for the agreement. The interest attaches when the last element occurs. UCC Sec. 9-308(a) makes attachment a precondition of perfection and perfects the interest at the moment of attachment where the perfection steps are already complete.
• UCC Sec. 9-108 and UCC Sec. 9-504 are the paired description rules, the first governing the security agreement and the second the financing statement.
  • Sec. 9-108(a) requires a description that reasonably identifies the collateral.
  • Sec. 9-108(b) permits identification by specific listing, category, UCC-defined type, quantity or formula.
  • Sec. 9-108(c) rules out "all the debtor's assets" and words of similar import.
  • Sec. 9-504 sets a deliberately lower bar, letting a financing statement simply indicate that it covers all assets or all personal property.
• UCC Sec. 9-322(a)(1) is the residual priority rule, ranking conflicting perfected interests by time of filing or perfection, whichever is earlier, absent a later gap. UCC Sec. 9-502(d) permits filing before the security agreement is made or the interest attaches, and UCC Sec. 9-509(a)(1) makes that filing effective where the debtor authorized it in an authenticated record.
• UCC Sec. 9-324(a) gives a PMSI in goods other than inventory or livestock priority over a conflicting interest in the same goods if perfected when the debtor receives possession or within 20 days thereafter. UCC Sec. 9-324(b) conditions inventory superpriority on perfection at the time of possession plus an authenticated notification received by the prior filer within five years before possession, and UCC Sec. 9-324(c) fixes when that notification is owed.
• UCC Sec. 9-317(a)(2) subordinates a security interest to a person who becomes a lien creditor before the interest is perfected.
• UCC Sec. 9-317(e) relates a PMSI back over buyers, lessees and lien creditors arising between attachment and filing when the financing statement is filed before or within 20 days after delivery.
• UCC Sec. 9-320(a) lets a buyer in ordinary course, other than a buyer of farm products from a person engaged in farming operations, take free of a security interest created by its seller even if perfected and even if the buyer knows of it, with UCC Sec. 1-201(b)(9) supplying the definition. UCC Sec. 9-320(b) is the consumer-to-consumer rule, requiring no knowledge, value, personal use, and purchase before any financing statement is filed.
• UCC Sec. 9-315 governs proceeds.
  • Sec. 9-315(a)(2) attaches the interest to identifiable proceeds by operation of law.
  • Sec. 9-315(c) makes the proceeds interest perfected if the original was.
  • Sec. 9-315(d) expires that automatic perfection on the 21st day unless the same-office rule is met, the proceeds are identifiable cash proceeds, or the interest is perfected another way within 20 days.
• UCC Sec. 9-515 fixes the five-year effectiveness of a filing and confines a continuation statement to the six months before lapse, with UCC Sec. 9-510(c) making an out-of-window continuation ineffective. UCC Sec. 9-507(c) splits the collateral on a debtor name change, keeping the stale filing effective as to collateral acquired before or within four months after the change and cutting it off later unless an amendment is filed inside that window.
• UCC Sec. 9-609 carries repossession: possession after default, either by judicial process or, without it, only if the secured party proceeds without breach of the peace. UCC Sec. 9-602(6) makes that duty non-waivable.
• UCC Sec. 9-610 permits a public or private disposition of the collateral, so long as every aspect of it is commercially reasonable.
• UCC Sec. 9-612(b) supplies a 10-day notification safe harbor in a non-consumer transaction.
• UCC Sec. 9-615(a) applies the proceeds of a disposition to its expenses before the debt, and UCC Sec. 9-615(d)(2) makes the obligor liable for the deficiency.
• UCC Sec. 9-620 governs strict foreclosure, the secured party's acceptance of the collateral in satisfaction of the debt.
  • Sec. 9-620(c)(2) lets silence for 20 days operate as consent to a full-satisfaction proposal.
  • Sec. 9-620(e) shuts the option off for consumer goods once the debtor has paid 60 percent of the cash price (purchase-money) or of the principal amount (non-purchase-money).
  • Sec. 9-620(f) then requires disposition within 90 days.
  • Sec. 9-620(g) bars acceptance in partial satisfaction in any consumer transaction.
• 11 U.S.C. Sec. 541 defines property of the estate, sweeping two categories in and holding two out.
  • Sec. 541(a)(1) sweeps in all legal or equitable interests as of the commencement of the case.
  • Sec. 541(a)(5) adds interests acquired within 180 days by bequest, devise or inheritance, by property settlement or divorce decree, or as a life-insurance or death-benefit beneficiary.
  • Sec. 541(a)(6) excludes post-petition earnings from services of an individual debtor.
  • Sec. 541(c)(2) excludes a beneficial trust interest subject to a transfer restriction enforceable under nonbankruptcy law.
• 11 U.S.C. Sec. 522 carries exemptions. Sec. 522(b)(3)(A) applies the exemption law of the debtor's domicile for the 730 days before filing, dropping to the 180 days preceding that period if the domicile was not in a single state. Sec. 522(b)(3)(C) exempts retirement funds in an account exempt from taxation under IRC Sec. 401, 403, 408, 408A, 414, 457 or 501(a). Sec. 522(f)(1) permits avoidance of judicial liens and of nonpossessory, nonpurchase-money interests in household goods, tools of the trade and health aids, and Sec. 522(f)(2)(A) supplies the impairment formula.
• 11 U.S.C. Sec. 547(b) carries the five preference elements, with Sec. 547(b)(4)(A) reaching 90 days and Sec. 547(b)(4)(B) reaching ninety days to one year for an insider. Sec. 547(f) presumes insolvency only in the 90 days before filing, and Sec. 547(g) puts avoidability on the trustee and non-avoidability on the defending creditor. Sec. 547(c) holds the defenses, including the contemporaneous exchange in (c)(1), ordinary course in (c)(2), the enabling loan perfected within 30 days in (c)(3), and subsequent new value in (c)(4).
• 11 U.S.C. Sec. 548 carries fraudulent transfers within 2 years before filing, on either of two theories.
  • Sec. 548(a)(1)(A) is the actual-intent theory.
  • Sec. 548(a)(1)(B) is the constructive theory, which pairs less than reasonably equivalent value with insolvency, unreasonably small capital, or debts beyond the debtor's ability to pay.
• 11 U.S.C. Sec. 548(c) gives a transferee who took for value and in good faith a lien to the extent of the value it gave.
• 11 U.S.C. Sec. 507(a) ranks priority claims, and 11 U.S.C. Sec. 726 distributes the estate, paying Sec. 507 claims first under Sec. 726(a)(1) and requiring pro rata payment within each class under Sec. 726(b). 11 U.S.C. Sec. 506(a)(1) splits an undersecured claim into a secured claim to the value of the collateral and an unsecured claim for the balance.
• 11 U.S.C. Sec. 727(a)(1) withholds a Chapter 7 discharge when "the debtor is not an individual," and Sec. 727(b) discharges all pre-petition debts except as provided in Sec. 523. 11 U.S.C. Sec. 523(c)(1) makes the exceptions in Sec. 523(a)(2), (4) and (6) non-self-executing, so those debts are discharged unless the creditor requests a determination and the court so rules.
• 11 U.S.C. Sec. 524(e) provides that discharge of a debt of the debtor "does not affect the liability of any other entity on, or the property of any other entity for, such debt." It is the provision that keeps a guaranty alive through the principal's bankruptcy.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.

See also

• Sources for every REG topic
• Free REG sample questions
• The CPA exam glossary