How To Discharge Debt Using UCC: Get rid of debt with ease using the Uniform Commercial Code (UCC). Our step-by-step guide covers everything from understanding UCC to filing for debt discharge. Start your debt-free journey today!
Finding extra funding for your business comes with difficulty sometimes. Your creditor wants to be sure your business is worth the risk. Well, you know these criteria like credibility, good credit scores, an established business pattern, and proof the company is making profits. But even if your business has all the requirements mentioned, it’s not guaranteed you will get the loan.
There is something to consider that might affect your loan chances, which creditors use called UCC filing. And if you default on payment, how do you discharge your debt using UCC? Keep reading, as you will find all the information you need in this article
What Is UCC (Uniform Commercial Code)?
Before the UCC came into existence, all the states in the US operated on their commercial laws. But when the issues of inter-state transactions started springing up among companies and individuals, which brought about adjustments made to it to accommodate everyone.
The UCC is used to control and regulate commercial transactions. It’s an article containing 11 articles that covers everything that has to do with sales, investment security, deposits, and negotiable instruments.
Most states have started using either a part of the UCC laws or even all of them. A UCC lien is an official financing statement that has been obtained from the office of the state secretary. It is used on any property agreed to be used as collateral.
Also Read Can Loans Be Written Off?
The UCC Lien For A More Secured Transaction
According to Article 9 under the UCC, secured transactions are documented at the state Secretary’s office. An organization files a financing statement as a public notice against a particular collateral.
In a situation where a debtor wants to use collateral to collect a loan, for instance, the UCC lien will reveal if there is an already existing financial statement against that collateral. It’s essential to file UCC financial statements because it protects other creditors from using the same collateral.
And if the borrower defaults in their payment, the creditor can possess the collateral used as a pledge when the loan was collected. UCC also benefits the borrower because they can secure good loans for their business.
Implications Of Defaulting The Loan Repayment
You might decide to take a loan, maybe for a business, to give you extra funding to support the business or to acquire a property for your company. Remember that a UCC filing on your collateral puts your property in the hands of the lender because they can possess it if you default on payment.
But if you keep making payments when due, you won’t have any problems. However, if your business is going through a hard time and sales are not forthcoming, it might be tough to keep up with the payment. Now, what would you do?
If you are not meeting up with payment at the agreed payment plan, it could lead to severe consequences for your business.
Understand that lenders use the UCC lien to confirm your collateral before giving you the loan. Whatever item you used for collateral, whether a property, home, or car, is under the UCC lien cover. In a situation where your business is facing problems, you have to find a way of paying the debt so you don’t lose your property.
A More Practical Way To Discharge Debt
Discharging debt is a common practice for people who have defaulted in paying up their loans. So, if you also want to go this route, the easiest way is to file for bankruptcy.
This is a permanent way of discharging your debt because once you do this, there is no going back. Your creditors won’t possess your collateral or threaten you with calls and messages again.
But don’t forget that if your creditor has gotten a lien against your collateral which was not relinquished before the bankruptcy proceedings, the lien can still be implemented, which means that your creditor maintains the right to claim your property.
But here is something you need to know about filing for bankruptcy and how the court treats your discharge file.
When you file under chapter 7 bankruptcy, the court gives your creditor time also to file a complaint to object to the discharge. If the creditor fails to lay any complaint, then the discharge still stands and is effective within four months from the first day of filing.
Also, chapter 11 of the bankruptcy states that your debt can be discharged if you can pay the debt according to the agreement on your debt payment plan.
Plus, you can get an extension for another four to five years, giving you more time to make your payments. As soon as the discharge is effected, a mail bearing the discharge order is sent to the creditors and your attorney, stating that you should be left alone.
When it comes to debt discharging, specific terms and conditions apply. The lender can discharge the debt and keep the collateral if the debtor has paid at least 50 percent of the total debt owed.
The lender presents the debtor with this proposition which they must accept or reject. Before any lender takes over a property, there must be a signed proposition between debtors and their lenders showing that they agree to the new terms of the agreement.
However, if the debtor objects to the lender taking over the collateral and if they reject the proposition, the lender can sell off the property. In some cases, especially when the collateral is consumable goods, the creditor reserves the right to claim the collateral and discharge the debt without the debtor’s consent.
The Uniform Commercial Code(UCC) lien is one lien that most lenders use in guaranteeing the collateral presented by a borrower before lending out money.
While the lien is essential for both lenders and borrowers to get the money they want, it still puts the borrower at risk of losing their collateral if payment defaults.
But it can’t get that bad. Filing for bankruptcy and following the terms written in this article can help discharge your debt incurred under UCC liens and help you regain your property.