Ucc Filing Subordination Agreement

If you`re a business owner seeking to secure financing or establish credit, you may have come across the term „UCC filing.” UCC stands for Uniform Commercial Code, and a UCC filing is a legal document that is filed with the Secretary of State or other government agency to establish a creditor`s security interest in a debtor`s personal or business property.

But what happens if there are multiple creditors vying for the same collateral? That`s where a subordination agreement comes into play. In this article, we`ll explore the ins and outs of UCC filing subordination agreements and how they can impact your business.

What is a UCC Filing Subordination Agreement?

A UCC filing subordination agreement is a legal agreement between two or more creditors that establishes the priority of their respective security interests in a debtor`s property. The terms of the agreement specify which creditor has first priority, second priority, and so on, in the event that the debtor defaults on their debt obligations.

Why Would You Need a Subordination Agreement?

There are a few situations where a subordination agreement might be necessary:

– Multiple lenders: If a debtor has multiple loans or lines of credit, there may be multiple UCC filings for the same collateral. A subordination agreement can establish the order of priority for those filings.

– Refinancing: If a debtor wants to refinance an existing loan, a subordination agreement may be required to establish the priority of the new lender`s interest in the collateral.

– Bankruptcy: In the event of a debtor`s bankruptcy, a subordination agreement can help establish the priority of payments to creditors.

How Does a Subordination Agreement Work?

The terms of a subordination agreement dictate the order in which creditors will be paid in the event of a default. Generally, the creditor with first priority will be paid in full before any other creditors receive payment. If there is not enough collateral to satisfy the first creditor`s claim, the second creditor will then be paid, and so on, until all creditors have been paid in full or the collateral is exhausted.

It`s important to note that a subordination agreement only affects the priority of the creditor`s claims to the collateral. It does not affect the overall amount of debt owed by the debtor. In other words, a creditor with a lower priority may still be owed money after the collateral has been exhausted.

Conclusion

UCC filing subordination agreements are an important tool for establishing the priority of creditors` claims to a debtor`s collateral. If you are a business owner seeking financing, it`s important to understand the potential impact of subordination agreements on your business. Working closely with a qualified attorney and financial advisor can help ensure that you are making informed decisions and protecting your interests.