Collateral Changes After the Loan. Does the Security Interest Follow It?
A security interest can sometimes reach property acquired later and identifiable proceeds from original collateral.
After-acquired property
A security agreement can cover qualifying property the debtor acquires after the agreement is signed, subject to statutory limits and collateral type.
Proceeds
When collateral is sold, exchanged, collected, or otherwise disposed of, the secured party can often obtain an interest in identifiable proceeds.
Perfection
Perfection in proceeds can continue automatically for a period and may require additional action for longer-term protection depending on the facts.
Exam strategy
Start with attachment to original collateral, then ask whether the new property is after-acquired collateral or proceeds.
The takeaway
After-acquired property clauses expand what future collateral can be covered. Proceeds rules help the security interest follow value when collateral is sold or converted.
Related Summit guides
FAQ
Can a security agreement cover future inventory?
Yes in many circumstances.
Can a security interest continue into proceeds?
Yes.
Does perfection in proceeds always last forever automatically?
No.