UCC Filings and Defaults & Remedies

UCC Filings Part 5 | Defaults & Remedies

Our final section in this series covers Default & Remedies under Article 9.

Review Part 1 | Introduction & Scope of Article 9, Part 2 | Conveying a Security Interest and Perfection & Priority under Article 9, Part 3 | Perfection of a Security Interest and Part 4 | Priority of a Security Interest

What is Default?

Your debtor defaults, or is in default, when they fail to fulfill the obligations identified in the Security Agreement. Default includes bankruptcy or insolvency of your debtor, debtor’s failure to pay debts when due, removal of collateral and failure to insure collateral.

What to do When Your Debtor Defaults

Option 1: Repossession

With the filing of a PMSI, you secure the right to peacefully repossess your goods, if so desired. The Secured Party can either repossess the goods on their own, or seek a judicial order.


(a) [Possession; rendering equipment unusable; disposition on debtor’s premises.] After default, a secured party: (1) may take possession of the collateral; and (2) without removal, may render equipment unusable and dispose of collateral on a debtor’s premises under Section 9-610. (b) [Judicial and nonjudicial process.] A secured party may proceed under subsection (a): (1) pursuant to judicial process; or (2) without judicial process, if it proceeds without breach of the peace.

Option 2: Foreclosure

Under 9-610, the Secured Party may sell (or foreclose upon) the collateral. A foreclosure sale may be private or public, the Secured Party must ensure the sale is commercially reasonable, the Secured Party must provide the debtor with reasonable notice of the sale and the Secured Party must notify other secured parties with an interest in the collateral (for non-consumer transactions).

The proceeds from a foreclosure sale are applied in the following order: 1. Secured Party’s repossession and foreclosure sale expenses, 2. debt owed to the Secured Party, 3. debts owed to inferior secured parties, 4. remaining proceeds go to the debtor.

Debtor’s Remedies

The debtor can redeem his/her interest in collateral at any time before the debt is satisfied by strict foreclosure, the collateral is sold, or a binding contract for the sale of the collateral is entered. The debtor must pay full amount of the secured debt and any expenses the Secured Party reasonably incurred in dealing with the collateral.

Prior to disposition of the collateral, a court may order or restrain disposition if the Secured Party fails to comply with the UCC provisions governing default. After disposition, the Secured Party is liable for any damages resulting from his/her noncompliance with the default provisions.


(b) [Damages for noncompliance.] Subject to subsections (c), (d), and (f), a person is liable for damages in the amount of any loss caused by a failure to comply with this article. Loss caused by a failure to comply may include loss resulting from the debtor’s inability to obtain, or increased costs of, alternative financing.

If the Secured Party does not comply with the mandatory sale provision relating to consumer goods, the debtor may recover under the code or in conversion.

Key Points for the Secured Party to Remember Upon Debtor’s Default

– The term default is not defined under Article 9; the debtor and Secured Party are left to define events of default within their contract.

– The collateral may be repossessed.

– If desired, the Secured Party has the right to repossess without disturbing the peace. If the Secured Party is unable to peacefully repossess the collateral, legal steps may be necessary including a temporary restraining order or pursuing suit against the debtor.

– If the Secured Party does not want to repossess the collateral, the claim could be placed with an attorney to file suit, which could result in Judgment, allowing the garnishment of accounts and/or asset attachments.

– The disposition of collateral.

– After recovering personal property, exercise reasonable care of the property (i.e. clean & repair the collateral prior to sale).

– Act in a commercially reasonable manner.

– Consider disclaiming all express and implied warranties in the bill of sale delivered to the purchaser of collateral at the foreclosure sale.

– Properly notify all parties of the disposition and allow for sufficient time prior to the disposition.

Satisfaction of the account.

– If permitted by contract, or applicable law, satisfy all costs and expenses of repossession and sale from the sale proceeds.

– If the sold collateral is consumer goods, provide the debtor and all other obligors with a calculation of any surplus or deficiency and an explanation of how the calculation was made.

– The Secured Party should consider accepting the collateral in full or partial satisfaction of the debt. Adhere to all technical statutory requirements when doing so.

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