Browse terms
Secured debts and liens
Security interest
A security interest is a lien created by an agreement. The agreement that creates or provides for it is called a security agreement. 1
Talk to a lawyerHow does a security interest work?
Outside bankruptcy, the Uniform Commercial Code defines a security interest as an interest in personal property or fixtures that secures payment or performance of an obligation. It becomes enforceable when value has been given, the debtor has rights in the collateral and a further condition is met, such as the debtor authenticating a security agreement that describes the collateral. 2
In an individual Chapter 7 case, the statement of intention tells the court and creditors what the debtor plans to do with property subject to security interests: surrender it, redeem it or reaffirm the debt. 3 4
A security interest can outlast the discharge. A valid lien that was not avoided in the case remains afterward, and the secured creditor may enforce it to recover the property. 5
A debtor may be able to avoid one narrow kind: a nonpossessory, nonpurchase-money security interest in certain household goods, tools of the trade or professionally prescribed health aids, to the extent it impairs an exemption. 6
How is it different from other liens?
| Kind of lien | How it arises | Examples |
|---|---|---|
| Security interest 1 3 | By agreement, through a security agreement 1 3 | Home mortgages and auto loans 1 3 |
| Judicial lien 1 | By judgment, levy or other legal process 1 | A lien a creditor gets through a court case 1 |
| Statutory lien 1 | Automatically, by force of a statute 1 | Tax liens and mechanics' liens 1 |
General rules only. Which kind of lien a creditor holds can change what a debtor may do about it.
Common questions
What is an example of a security interest?
Where do creditors with a security interest appear in the paperwork?
Schedule D lists creditors who hold claims secured by property. 7
Does a discharge cancel a security interest?
Not by itself. A valid lien that has not been avoided remains after the bankruptcy case. 5
Sources
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