When the Debtor Retains Possession of the Collateral

In the second type of secured transaction, the debtor retains possession of the collateral. In such cases, the secured party enters into a written contract with the debtor. This contract creates or provides for the security interest. Such a contract is called a security agreement. In addition to being in writing, the security agreement must be signed by the debtor and contain sufficient information to identify the collateral reasonably.

It is this second type of secured transaction, which enables a consumer to buy automobile, major kitchen appliances, or other costly items on credit. The debtor gets immediate possession and use of the goods. But the seller or finance company has the right to take them back if a payment is missed or if the contract is breached in any manner.

In a similar way, a merchant can buy goods on credit and sell them to customers. The merchant gets money to pay the debt. The creditor-seller is protected by retaining a security interest in the unsold goods.

This type of secured transaction is not limited to buying on credit. It is also used in borrowing money. Suppose one wants to borrow funds from a bank. By giving a bank a security interest in a car, the debtor’s promise to repay is strengthened by the car’s value. If the bank approves the loan, which it is likely to do with the added security, the borrower obtains the desired money and still has the use of the car.

Vocabulary

secured transaction обеспеченная сделка

to repossess изымать за неплатеж

pledge залог (syn. bail, bond, collateral, guarantee, security)

collateral гарантия, обеспечение в виде личного имущества

security interest обеспечение; право кредитора вступить во владение собственностью, предложенной в качестве обеспечения

secured party кредитор в обеспеченной сделке

default неисправность должника; невыполнение обязательств, отказ выплачивать долги, дефолт

security agreement письменный договор обеспечения

to put up выставлять на продажу

legal step правовая мера

surplus [‘sз:pləs] избыток, излишек, остаток, прибавочная стоимость