[hopecpa]

On June 15, Debtor borrowed $50,000 from Creditor and gave Creditor a security interest in its factory

equipment. Creditor perfected by filing on June 16. On June 17, Debtor borrowed $50,000 from Bank and

gave Bank a security interest in its factory equipment. On June 18, Debtor was involuntarily petitioned into

bankruptcy. On June 19, Bank filed a financing statement covering Debtor’s equipment. Creditor has priority

over the trustee in bankruptcy because Creditor perfected before the bankruptcy petition was filed. Bank’s

security interest is subordinate to the trustee in bankruptcy because Bank perfected after the bankruptcy

petition was filed.

On June 15, Debtor purchased on credit from Creditor $50,000 worth of equipment for use in Debtor’s factory.

Debtor gave Creditor a security interest in the equipment. On June 21, Debtor was involuntarily petitioned into

bankruptcy. On June 23, Creditor filed a financing statement covering the equipment. Creditor has priority in

the equipment over the bankruptcy trustee because Creditor’s PMSI was perfected within 20 days of when

Debtor got possession of the equipment and so will relate back.

My doubt is with the 1st Q, why doesn’t the 20 day s grace period rule for noninventory PMSI applies to bank so that even the bank has priority over the bankruptcy trustee like the way it is applied in the 2nd Q in the case of the creditor. plz help

[Anonymous]

@hopecpa…I don't think the creditor has the PMSI in Question 1. The debtor just borrowed $50,000 (not to purchase the equipment) and used the equipment as collateral. In Question#2 the $50,000 was borrowed to purchase the equipment, therefore qualified as a PMSI.

[hopecpa]

thanks CPA-Convertible for your reply. got it now.

[Author]

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