As a bankruptcy attorney, not a week goes by where I do not have an individual sitting across from me who pledged personal property on a loan and didn’t really realize that they were giving that property as collateral to the lender. To be specific, with chapter 13 cases, there are at least two lenders who will file secured proof of claims on personal property that they have taken as collateral because they have a UCC-1 perfecting their lien in such property.
What is a UCC-1?
A UCC-1 is a legal form used by a creditor to put others on notice that they have an interest in personal property of a debtor.
From what former and current clients have told me, the scenario works like this: an individual needs to borrow money and they are told over the phone that they are approved and to just come in and sign the paperwork and pick up their money. When the individual shows up to sign the papers they are asked within the process of signing papers to fill out a form listing property that they own in the house. In some situations, the clients have no clue that this list is going to be used as collateral on the loan. The paperwork the individual will sign though, clearly has that the property is being pledged, however, the person signing the agreement is usually not clearly told that fact and is expected to read the documents before signing but they really are not given time to read the document.
If you do not feel comfortable with the transaction or are feeling pressured to list your property, walk away and find another lender. A lender should give you ample opportunity to read the documents and ask questions.
If you are caught in a situation where you have already pledged your household goods and are struggling to make payments to that lender, please visit two past blog post written by my colleagues to understand what household goods can be protected:
- Can you keep household items in Bankruptcy?
- Can you keep household good you pledged to a finance company?
Also, you should know that no one, not even a creditor that has a security interest in your personal property, is allowed to come into your home without your permission or a court order (with the Sheriff) allowing them to do so. If a lender or lender’s representative comes into your home without your permission or a court order, it is trespassing (a crime).
Mary Pool is a shareholder of the Bond & Botes Law Offices in Montgomery and Opelika, Alabama. She holds a Bachelor of Science from Auburn University at Montgomery, and a Juris Doctorate from Faulkner University’s Jones School of Law. She has represented thousands of clients over her more than 11 years working in the bankruptcy field. Read her full bio here.