Explain the priority of claims for secured and unsecured transactions

Question

What will be an ideal response?

Answer 1

Two or more creditors often claim an interest in the same collateral or property. The priority of the claims is determined according to 1. whether the claim is unsecured or secured and 2. the time at which secured claims were attached or perfected. The UCC establishes rules for determining priority of claims of creditors. The UCC rules for establishing priority of claims are as follows:
1. A creditor who has the only secured interest in the debtor's collateral has priority over unsecured interests.
2. If two or more secured parties claim an interest in the same collateral but neither has a perfected claim, the first to attach has priority.
3. If two or more secured parties claim an interest in the same collateral but only one has perfected his or her security interest, the perfected security interest has priority.
4. If two or more secured parties have perfected security interests in the same collateral, the first to perfect (e.g., by filing a financing statement, by taking possession of the collateral) has priority.
5. If a security interest in goods is perfected but the goods are later commingled with other goods in which there are also perfected security interests, and the goods become part of a product or mass and lose their identity, the security interests rank equal and according to the ratio that the original cost of goods of each security interest bears to the cost of the total product or mass.