Chapter 32: Secured and Unsecured Credit Transactions
1. The point in the process of creating a security interest when the security interest becomes legally effective
against the ownership or possession rights of the debtor in the collateral is termed attachment.
2. Because the creditor has collateral and the legal right of repossession, the debt is always paid in full in a
secured transaction
3. If a debtor declares bankruptcy, the unsecured creditor may receive nothing or a few cents for each dollar of
his or her unpaid debt owed by the debtor.
4. A security interest under the UCC can be created only with the consent of the creditor.
5. A secured transaction where the creditor obtains possession of the collateral is called a pledge.
6. A security interest is valid against a debtor only if it has been perfected.
7. Records of secured transactions may be properly filed centrally in the office of the secretary of state or an
office in the county where the goods are located, or both.
8. Depending upon its use at the time, an item such as a television can be classified as a consumer good,
equipment, or inventory.
9. If the debtor defaults, the secured creditor who does not have possession of the collateral may take possession
of it but only by formal court proceedings.
10. As an alternative to resale, the secured creditor in most instances may retain the collateral in full settlement
of the debt.
11. A secured transaction usually involves
A. collateral.
B. right of repossession.
12. A security interest is an
C. interest paid on Social Security benefits.
D. interest you pay for security protection.
13. When the net proceeds from repossessed, resold goods are more than the balance due, the excess is
A. considered profit for the creditor.
B. considered taxes for the state.
14. When the net proceeds from repossessed, resold goods do not cover the balance due, the creditor
A. assumes the difference as a loss.
B. may claim another possession of the debtor to sell.
15. The Uniform Commercial Code (UCC) provisions apply to security interests taken in
A. deeds.
B. mortgages.
16. A security interest is created when
A. an agreement between the debtor and creditor gives the creditor a security interest.
B. the debtor has rights in the collateral.
17. A brief written notice of the existence of a security interest in identified property that is filed with the
appropriate governmental office is
C. a termination statement.
D. a security agreement.
18. Which of the following is not considered a class of goods for tangible property used as collateral?
A. equipment
B. farm products
19. The acknowledgment of the full payment that informs potential buyers and creditors that the property is no
longer collateral is called
A. a constructive notice.
B. a financing statement.
20. Unless the consumer agrees in writing, a creditor may not keep the collateral in satisfaction of the debt if the
debt has been repaid by
A. at least 30%.
B. 50%.
21. Willie used his home entertainment system as collateral on loans with several finance companies. Each
creditor was unaware of the security interest that each had in the sound system. Willie overextended himself
financially and was unable to make his loan payments to any of the finance companies. Which of the following
statements regarding the perfecting of this security interest is true?
A. A security interest is invalid against Willie if it has not been perfected.
B. The UCC favors the first creditor to have priority over all other creditors.
22. What must a creditor do in order to perfect a security interest in commercial paper such as promissory notes,
stock certificates, or bonds?
A. file a financing statement
B. redeem the paper
23. Jamal obtained a $12,000 car loan using the car as collateral. He has paid $9,600 on the loan (80 percent). If
Jamal defaults on the loan at this point, which of the following is true?
A. As Jamal has paid more than 60 percent of the debt, the creditor may not keep the collateral in satisfaction of
the debt unless Jamal has agreed to such retention in writing.
B. In the absence of a written agreement regarding retention of collateral, the creditor must sell the collateral
within 90 days after repossession.
24. When a debtor pays the debt associated with a secured transaction, how long does the creditor have to notify
C. 15 days
D. 60 days
25. Which of the following statements is not true?
C. Under the UCC a security interest can be created only with the consent of the debtor.
D. Both a and c.
26. The ____________________ is the party to whom a debt is owed.
27. ___________________ is the term given to the property that is subject to the security interest of the
creditor.
28. The right of ____________________ means that a creditor can take collateral in the debtor’s possession that
is security for a loan the debtor has defaulted on, sell it, and use the net proceeds to pay the balance due on the
29. A(n) ____________________ is a person who has a security interest in collateral owned by the debtor
30. The type of secured transaction in which the creditor retains possession of the collateral is called a(n)
____________________.
31. In a secured transaction the contract, which must explicitly create or provide for a security interest in the
creditor, is termed a(n) ____________________.
32. ____________________ is the point at which the security interest in collateral becomes legally effective
against the ownership of possession rights of the debtor.
33. A(n) ____________________ security interest exists whenever the secured party has provided sufficient
notice to other potential creditors of the existence of his or her secured position in particular collateral.
34. A(n) ____________________ is a brief, written notice of the existence of a security interest in the identified
property.
35. The creditor who has ____________________ of the collateral, even though no financing statement has
been filed, has a perfected security interest.
36. Filing of a financing statement is not required to protect a retailer’s security interest in consumer goods
against other creditors of the buyer as long as a security agreement has been signed. This type of protection of a
creditor’s security interest in collateral is known as a(n) ____________________ security interest.
37. Filing a financing statement with the required governmental office gives ____________________ notice
that a security interest in specific property exists.
38. Under the UCC, business goods that are intended for sale or lease are termed ____________________.
39. Rights to money, goods, or promises to perform specified contracts are examples of a class of collateral
referred to as ____________________ property.
40. Under the UCC, goods used by a business in performing its function are referred to as
____________________.
41. Leon borrowed money to purchase a car against the certificate of deposit he has in the bank. Is this a
secured transaction? Is the car his collateral? Explain your answer.
Yes, it is a secured loan. A certificate of deposit can be collateral for a secured transaction. Normally, with
42. Gordan and Angie purchased a refrigerator, washer, and dryer for their new home on credit from Discount
Appliance City using the appliances as collateral. Three months later, the appliance wholesaler, Appliance Inc.,
appeared at their front door wanting to reclaim the appliances because Discount Appliance City had defaulted
on its payments for the appliances. Appliance Inc. contends that it has a security interest in the appliances and
has the right to take possession of them. Is Appliance Inc. correct in this assumption? Why or why not?
Answers may vary. A security interest in inventory is perfected by filing or by taking possession of the