What does pledging collateral change about the nature of a lender's claim?

A general promise to repay becomes enforceable in a wider range of states

A general promise to repay becomes a specific claim on an identified asset

An obligation of the borrower becomes an obligation of a third-party guarantor

A long-term obligation becomes repayable on demand at the lender's option

Which of these arrangements are described as instances of the same secured lending mechanism?

A bank deposit, a money market fund holding, and a Treasury bill purchase

A credit card balance, a personal loan, and an unsecured corporate bond issue

A home securing its mortgage, a portfolio securing margin credit, assets pledged in an indenture

An insurance policy, a surety bond, and a letter of credit issued by a bank

A borrower with many creditors defaults. How does the secured lender's position differ from the unsecured lenders'?

Its claim runs against specific assets and is unaffected by how many others there are

Its claim is paid first out of whatever cash the borrower happens to hold when it defaults

Its claim is guaranteed in full by the court supervising the insolvency, whatever the assets fetch

Its claim is settled before any of the borrower's employees are paid their outstanding wages

Beyond reducing the lender's expected loss, what second function does a collateral requirement perform?

It reduces the interest rate the lender is permitted by statute to charge

It gives the borrower a specific asset to lose, so defaulting costs them directly

It shortens the period over which the borrower is obliged to repay the loan

It transfers the risk of the borrower's default onto the asset's insurer

Which five categories of tangible personal property does Article 9 recognise as collateral in business lending?

Securities, deposit accounts, receivables, inventory and patents

Land, buildings, equipment, inventory and accounts receivable

Vehicles, machinery, real property, raw materials and finished goods

A lender takes security over a commercial building. Under which body of law is that interest created and recorded?

The law of the state where the lender rather than the property is located

Article 9 of the Uniform Commercial Code, with a financing statement filed

Federal bankruptcy law, which governs all claims capable of surviving insolvency

State real property law, with the instrument recorded in the county records

How does an accounts receivable financing facility work?

The lender advances a set proportion of eligible receivables, which repay it as they are collected

The lender buys the receivables outright and bears the loss on any that customers never pay

The lender advances against the borrower's projected sales for the coming year, repaid from future revenue

The lender takes a charge over the borrower's fixed assets and equipment instead of its receivables

What three stages does Article 9 establish for creating and protecting a security interest?

Application, then approval, then registration with the state office

Attachment, then perfection, then the determination of priority

Valuation, then pledge, then release upon repayment of the loan

Disclosure, then consent, then enforcement against the borrower

Which three requirements must be satisfied together for a security interest to attach?

An appraisal obtained, insurance placed, and the collateral physically inspected

A financing statement filed, a lien noted, and the borrower's written consent

Value given, debtor rights in the collateral, and an authenticated security agreement

A guarantee obtained, the loan disbursed, and the interest publicly recorded

A borrower signs a security agreement pledging equipment that turns out to belong to a third party. What is the position of the lender's interest?

It attached to the borrower's other assets in place of the equipment named

It attached but is unperfected, so it fails only against competing creditors

It attached, the signed agreement being sufficient to create the interest

It never attached, the borrower having no rights in the equipment to give

A lender holds a blanket lien over a borrower's inventory. What does an after-acquired property clause do when the borrower restocks?

The new inventory is covered automatically, with no further agreement needed

The new inventory is covered only once a fresh financing statement is filed

The new inventory falls outside the lien until the borrower agrees otherwise

The lien transfers from the sold inventory to the proceeds of the sale alone

A security interest has attached but has not been perfected. Against whom is it effective?

Nobody at all — an unperfected interest has no legal effect of any kind

The borrower only — other creditors and a bankruptcy trustee may defeat it

Everyone, perfection affecting the order of priority rather than validity

Everyone except a subsequent purchaser who acquires for value in good faith

What must a financing statement contain for the usual method of perfection to succeed?

An appraisal of the collateral and the borrower's most recent financial statements

The loan amount, the interest rate, and the scheduled date of final repayment

The debtor's full legal name, the secured party's name, and a collateral description

The signatures of the debtor and the lender witnessed before a notary public

A lender wishes to take security over a borrower's deposit account. How must it perfect that interest?

By notifying the borrower in writing before the first advance is made

By filing a financing statement in the state where the borrower is located

By notation of the lien on the account statements the bank issues

By obtaining control through an agreement with the bank holding the account

Two lenders hold perfected security interests in the same collateral. Under Article 9's general rule, which prevails?

The one that first filed or perfected, priority dating from the earlier of the two

The one whose loan is larger, priority following the size of the advance

The one whose security agreement was signed first, whatever the filing dates

Neither, the two sharing the collateral proceeds in proportion to their loans

A lender finances specific new equipment for a borrower whose earlier lender holds a perfected blanket lien over all business assets. Can the equipment financier take first priority?

No, the earlier blanket lien covering all assets including anything acquired later

Yes, through a purchase money interest perfected within twenty days of delivery

Yes, but only with the written consent of the holder of the blanket lien

Only if the earlier lender fails to renew its financing statement in time

A lender's security interest was still unperfected when the borrower filed for bankruptcy. What becomes of it?

It may be perfected during the proceeding and take effect from the later filing

It survives, the trustee taking the assets subject to the existing interest

The trustee may avoid it, leaving the lender an unsecured general creditor

It is subordinated to other secured claims but keeps its secured character

What does the loan-to-value ratio measure in mortgage lending, and what does a lower one give the lender?

The loan against the original purchase price, a lower figure showing equity growth

The loan against the borrower's income, a lower figure indicating affordability

The interest against the property's rental yield, a lower figure showing cover

The loan against the appraised value, a lower figure leaving a larger cushion

What loan-to-value ratio do conventional mortgage lenders typically require for the most favourable terms, and what happens above it?

Eighty percent at most, with private mortgage insurance usually required above

Ninety-five percent at most, with a higher interest rate charged above it

Fifty percent at most, with the balance funded through a second mortgage

There is no conventional maximum, the lender pricing whatever ratio it accepts

A foreclosure sale raises less than the outstanding mortgage balance. What may the lender do about the shortfall?

Nothing — the collateral is the whole of the lender's recourse in every state

Pursue a deficiency judgment against the borrower, in states that permit one

Reclaim the property and resell it until the full balance has been recovered

Claim the difference from the borrower's other secured lenders proportionally

What three rights does a customer grant the firm by signing a margin agreement?

The right to select investments, to reinvest dividends, and to liquidate with notice

A security interest in the securities, the right to vote them, and to lend them to short sellers

A security interest in the securities, the right to pledge them onward, and to liquidate without notice

A guarantee of the debit balance, the right to charge interest, and to close the account

What minimum equity must a margin account maintain against the current market value of its securities?

Ten percent of that market value, measured at each month end

Fifty percent of that market value, at all times

Twenty-five percent of the original purchase cost, at all times

Twenty-five percent of that market value, at all times

In a repurchase agreement, what is the haircut and what does it protect against?

The margin by which the cash advanced sits below the securities' value, covering a fall

The fee the dealer pays the cash investor for arranging the financing, covering its costs

The difference between the sale and repurchase prices, representing the interest the investor earns

The proportion of the securities the cash investor may sell on to others before the repurchase date

Why can a single bond carry a higher credit rating than the general corporate rating of the company that issued it?

The bond matures sooner than the issuer's other obligations outstanding

Collateral protects that instrument specifically, beyond the issuer's own standing

The bond was issued when the company's finances were materially stronger

The bond is held by institutions whose own ratings support the instrument

Along which dimensions is the quality of collateral assessed in credit analysis?

Age, physical condition, location and the identity of the previous owner

Original cost, accounting treatment, insurance cover and depreciation method

Liquidity, marketability, value stability, enforceability and the lender's control

Tax basis, book value, replacement cost and the issuer's own valuation

Why is the stability of a collateral asset's value under stress weighted so heavily, rather than its value in normal conditions?

Collateral whose value is stable can be liquidated by the lender without the borrower's consent

Collateral must be revalued each quarter under the accounting rules that apply to the lender

Collateral valued in normal conditions cannot lawfully be pledged to more than one lender

Collateral is realised in the conditions that caused the default, when values are lowest

A borrower defaults on a business loan secured by a pledge of its equipment. What does the pledge entitle the lender to do?

Seize the equipment and liquidate it to recover the outstanding debt

Take title to the equipment and all the borrower's other assets up to the amount owed

Collect the debt from the borrower's customers until the balance is repaid

Bar the borrower's other creditors from pursuing any claim until the equipment loan is repaid

Pledging collateral substantially reduces a lender's expected loss if the borrower defaults. What does that reduction make possible for borrowers?

Longer repayment terms, since a secured loan may not be called before its maturity

Lower interest rates, and credit for some who could not borrow unsecured at all

Loans larger than the collateral's value, since the lender's loss is now capped

Exemption from credit review, since the pledged asset replaces the borrower's standing

How does UCC Article 9 come to apply in every state of the United States?

The Federal Reserve imposed it as a uniform rule on the lenders it supervises

Congress enacted it as a uniform federal statute displacing state law

Each of the fifty states has adopted it in substantially uniform form

Lenders choose it by contract as a uniform governing law for each loan

A lender takes security over a borrower's fixtures. Which body of law governs that security interest?

Federal banking law, whenever the lender is a nationally chartered bank

State real property law, fixtures being treated as part of the land

Contract law, the security agreement itself fixing every term of the interest

UCC Article 9, which governs fixtures as well as personal property

Collateral: Types, UCC Article 9, Perfection and Margin

What Is Collateral?

Collateral is an asset pledged by a borrower to a lender as security for a loan or other credit obligation, giving the lender a legally enforceable right to seize and liquidate that asset to recover the outstanding debt if the borrower defaults — the foundational mechanism through which secured lending operates across every sector of the economy, from the residential mortgage in which a home secures the loan used to purchase it, to the margin account in which a securities portfolio serves as collateral against broker-dealer credit extensions, to the corporate bond indenture under which a company pledges specific physical assets to give bondholders priority claims in the event of insolvency.

Collateral transforms a general obligation of the borrower — the promise to repay that underlies all credit — into a specific, asset-backed claim that does not depend solely on the borrower’s financial health or willingness to pay, thereby reducing the lender’s credit risk, enabling borrowers with quality assets to access capital at lower interest rates than unsecured borrowers, and determining in bankruptcy which creditors recover their capital first and most completely. In the United States, the legal framework governing security interests in personal property — virtually all business assets except real estate — is Article 9 of the Uniform Commercial Code, adopted in substantially uniform form across all fifty states, which establishes the rules for creating, perfecting, and enforcing security interests and for determining priority among competing creditors claiming interests in the same collateral.

The law governing security interests in real property is state-specific mortgage and deed of trust law, recorded in county real property records rather than through the UCC filing system. This entry examines the economic purpose and function of collateral, the types of assets that serve as collateral across different lending contexts, the legal requirements for creating and perfecting a security interest under UCC Article 9, the priority rules that govern competing claims, the role of collateral in mortgage lending, the treatment of collateral in the margin account context under Regulation T and FINRA Rule 4210, and the significance of collateral analysis in the credit risk assessment that is central to the Series 65 examination curriculum.

The Economic Function of Collateral

Collateral serves two distinct but related economic functions that together explain why secured lending is so prevalent across financial markets.

The first function is risk reduction. When a lender extends unsecured credit — a credit card balance, an unsecured corporate bond, a personal loan — the lender’s only recourse in the event of default is a general unsecured claim against whatever assets the borrower happens to own at the time of default, in competition with all other unsecured creditors and subordinated to all secured creditors whose claims were established before the default. The recovery on unsecured credit in bankruptcy is uncertain and often low. When a lender extends secured credit backed by specific collateral, it acquires a priority claim on those assets that can be enforced regardless of how many other creditors the borrower has. The lender can recover from the pledged collateral even if the borrower has no other assets. This specific, priority claim substantially reduces the lender’s expected loss in the event of default, enabling lower interest rates for the borrower and making credit available to borrowers who could not obtain unsecured credit at all.

The second function is incentive alignment. The requirement to pledge valuable assets as collateral gives the borrower a powerful incentive to repay the loan rather than default — defaulting means losing the pledged asset, which may be a home, a vehicle, equipment central to the operation of the business, or a securities portfolio accumulated over years. Collateral therefore creates a stake for the borrower in the creditworthiness of the transaction that goes beyond the abstract obligation to repay.

Types of Collateral

The range of assets that can serve as collateral is broad and varies substantially by lending context. Under UCC Article 9, five categories of tangible personal property may serve as collateral in business lending: consumer goods, equipment, farm products, inventory, and fixtures. Additional categories of intangible and semi-intangible collateral include accounts receivable, chattel paper, instruments, investment property, deposit accounts, and general intangibles such as intellectual property and contract rights.

Real property — land and buildings — serves as collateral in mortgage lending under state-specific real property law rather than under Article 9. A residential mortgage pledges the home being purchased as collateral for the mortgage loan. A commercial real estate loan pledges the income-producing property as collateral for the loan used to acquire or develop it. The lender records its mortgage or deed of trust in the county real property records, providing public notice of the lender’s claim to all subsequent buyers and creditors.

Securities serve as collateral in margin accounts maintained at broker-dealers, in securities-backed lending programs offered by financial institutions, and in repurchase agreements in which one party sells securities to another with a contractual commitment to buy them back at a specified price, with the purchased securities serving as collateral for what is economically a short-term secured loan. In margin accounts, the securities purchased with borrowed funds serve as collateral for the broker-dealer’s loan to the customer, with the customer agreeing in the margin agreement to maintain the required equity percentage and consenting to immediate liquidation of the collateral by the broker-dealer without prior notice if a maintenance margin call is not met.

Inventory and accounts receivable are the primary forms of collateral in commercial asset-based lending — credit facilities extended to businesses based on the value of their working capital assets rather than on their long-term fixed assets or overall creditworthiness. In an accounts receivable financing arrangement, the lender advances funds up to a specified percentage of the borrower’s eligible receivables, with the receivables themselves pledged as collateral and collected by the lender or applied against the outstanding balance as they are paid by the borrower’s customers.

Equipment serves as collateral in equipment financing, where lenders or lessors extend credit secured by the specific machinery, vehicles, or other equipment being financed. The lender perfects a purchase money security interest in the equipment, giving it a first-priority claim on that equipment even if the borrower has previously granted another lender a blanket lien on all assets.

The Legal Framework — UCC Article 9

Article 9 of the Uniform Commercial Code governs security interests in personal property and fixtures across all fifty states in substantially uniform form following the adoption of Revised Article 9 effective January 1, 2002 and amended in 2010. The framework establishes a three-stage process for creating and protecting a security interest: attachment, perfection, and priority determination.

Attachment — Creating the Security Interest

Attachment is the point at which the security interest becomes legally enforceable against the borrower — the moment the lender acquires a right in the collateral that it can enforce. Under UCC Article 9, three requirements must be simultaneously satisfied for attachment to occur.

First, value must be given by the secured party. This is typically the extension of credit — the lender’s commitment to lend money or the actual disbursement of loan proceeds satisfies the value requirement. Second, the debtor must have rights in the collateral or the power to transfer rights in it. A borrower can only pledge what it owns or controls — a security interest cannot attach to property the debtor does not have rights in. Third, the debtor must authenticate a security agreement that reasonably describes the collateral, or the secured party must take possession or control of the collateral. The security agreement is the contract between the lender and borrower that grants the security interest and describes the specific assets pledged. UCC Section 9-108 requires that the description reasonably identify the collateral — the courts have interpreted this requirement strictly, finding that overly vague descriptions and references to separate, unattached documents may render the security agreement insufficient to support attachment.

After-acquired property clauses are common in commercial security agreements, extending the lender’s security interest to assets the borrower acquires in the future within the described collateral category. A blanket lien over all inventory, for example, automatically extends to cover new inventory purchased after the security agreement is signed, without requiring a new agreement each time the borrower restocks.

Perfection — Protecting Against Third Parties

Perfection is the additional step that makes the security interest effective not only against the borrower but also against third parties — other creditors, subsequent purchasers of the collateral, and the bankruptcy trustee who represents the interests of all unsecured creditors in a bankruptcy proceeding. An attached but unperfected security interest is enforceable against the borrower but may be defeated by a subsequent perfected creditor or by the bankruptcy trustee, who under the Bankruptcy Code has the power of a hypothetical lien creditor and can avoid unperfected security interests.

The most common method of perfection for most types of personal property collateral under Article 9 is filing a UCC-1 financing statement with the appropriate state filing office — typically the Secretary of State’s office of the state where the debtor is located. The financing statement provides public notice of the lender’s claimed security interest, allowing other potential creditors who search the public records to discover that the collateral has already been pledged. The financing statement must contain the debtor’s full legal name, the secured party’s name, and a description of the collateral. The US Court of Appeals for the Sixth Circuit confirmed that an inadequate financing statement — one that failed to include specific collateral terms — could cost a lender its perfected status even when the security agreement itself was adequate, underscoring the importance of precise collateral description in both documents.

For certain types of collateral, alternative perfection methods apply. Deposit accounts can only be perfected by the secured party obtaining control — an authenticated agreement with the bank holding the deposit account giving the secured party dominion over the account. Investment property including securities and securities accounts is perfected either by filing or by control, with control perfection — direct dominion over the account or certificate — providing better priority than filing-based perfection in the event of competing claims. Motor vehicles in most states are perfected by notation of the lien on the vehicle’s certificate of title rather than by UCC filing. Certain specific categories of collateral are automatically perfected upon attachment without any filing, though these represent a narrow set of circumstances defined in UCC Section 9-309.

Priority — Competing Claims on the Same Collateral

Priority rules determine which secured creditor prevails when multiple parties claim security interests in the same collateral — a situation that arises whenever a borrower pledges the same assets to more than one lender, whether intentionally or inadvertently. The general rule under Article 9 is first in time, first in right among perfected security interests — conflicting perfected security interests rank according to priority in time of filing or perfection, and each interest’s priority dates from the earlier of the time a financing statement covering the collateral is first filed or the time the interest is first perfected, provided there is no later period with neither filing nor perfection. Because a financing statement may be filed before a security agreement is made or the security interest attaches, a lender that files first can outrank a rival whose interest was perfected before its own.

An important exception to the general first-in-time rule applies to purchase money security interests. A PMSI arises when a creditor lends money specifically for the borrower to purchase the collateral in which the security interest is taken — the classic example is the equipment financing lender who provides funds specifically to acquire the equipment and takes a security interest in that same equipment. Under Article 9, a properly perfected PMSI in equipment has superpriority over a prior perfected blanket lien in the same equipment, allowing the equipment financing lender to take a first-priority position even when an earlier creditor holds a blanket security interest over all of the borrower’s business assets. To obtain this superpriority, the PMSI creditor must perfect its interest before or within twenty days of the debtor taking possession of the goods.

When a borrower files for bankruptcy, the bankruptcy trustee under 11 U.S.C. Section 544 has the power of a hypothetical lien creditor who perfected a security interest as of the bankruptcy filing date. Any security interest that was not perfected before the bankruptcy filing can be avoided by the trustee under this strong-arm power, transforming what the creditor believed was a secured claim into an unsecured general creditor claim with substantially lower recovery expectations.

Collateral in Mortgage Lending

In residential mortgage lending, the home being purchased serves as collateral for the mortgage loan, and the mechanics of creating and perfecting the lender’s security interest follow state real property law rather than the UCC. The mortgage or deed of trust is the legal instrument that conveys a security interest in the real property to the lender. Recording the mortgage in the county recorder’s office perfects the lender’s interest against subsequent purchasers and creditors.

The loan-to-value ratio — the ratio of the loan amount to the current appraised value of the property — is the primary metric for evaluating collateral adequacy in mortgage lending. A lower loan-to-value ratio provides the lender with a larger equity cushion — the difference between the property value and the outstanding loan — which protects the lender if property values decline. Most conventional mortgage lenders require a maximum loan-to-value ratio of eighty percent for the most favorable terms, requiring the borrower to provide at least a twenty percent down payment. When the loan-to-value ratio exceeds eighty percent, lenders typically require private mortgage insurance, which compensates the lender for a portion of the loss in the event of default and foreclosure.

In the event of default, the mortgage lender may exercise its right to foreclose on the property — a legal process that varies by state but results in a court-supervised or out-of-court sale of the property, with the sale proceeds applied first to the costs of foreclosure and then to the outstanding mortgage balance. If the sale proceeds exceed the outstanding debt, the surplus goes to the borrower or to junior lien holders. If the proceeds are insufficient to satisfy the outstanding balance — a deficiency — the lender may pursue a deficiency judgment against the borrower personally in states that permit it.

Collateral in the Securities Context — Margin Accounts

The margin account context is the most directly examination-relevant application of collateral for securities industry professionals. When a broker-dealer extends credit to a customer under Regulation T to purchase marginable securities, the purchased securities serve as collateral for the loan. The customer’s margin agreement specifically grants the broker-dealer a security interest in all securities held in the margin account, authorises the broker-dealer to pledge those securities to its own lenders as collateral for the broker-dealer’s own financing, and grants the broker-dealer the right to liquidate the collateral without prior notice to the customer if the account fails to meet maintenance margin requirements.

The minimum collateral adequacy standard for margin accounts is set by FINRA Rule 4210, which requires that the equity in the account — the current market value of the securities minus the debit balance — must equal at least twenty-five percent of the current market value of the securities at all times. When the value of the collateral declines below the level required to maintain this ratio, the broker-dealer issues a margin call requiring additional collateral or liquidates positions to restore the required equity. The securities purchased with margin credit are simultaneously the borrower’s investment and the lender’s collateral — their market value fluctuates continuously, creating the dynamic and potentially rapid deterioration in collateral adequacy that makes margin lending inherently more volatile than secured lending against stable assets.

In the repo market — the repurchase agreement market that is fundamental to the financing of fixed income securities positions — collateral is exchanged directly. A dealer who needs short-term funding sells Treasury securities or other high-quality fixed income instruments to a cash investor under an agreement to repurchase them the following day or at a specified future date at a slightly higher price. The securities serve as collateral for what is economically a short-term secured loan, and the haircut — the percentage by which the repo price is below the market value of the securities — is the collateral margin that protects the cash investor if the securities decline in value before the repurchase obligation is fulfilled.

Collateral Quality and Credit Risk Analysis

In fixed income credit analysis, the quality and enforceability of collateral is a major determinant of a bond’s credit rating and its expected recovery rate in the event of default. A bond secured by high-quality, easily liquidated collateral with a conservative loan-to-value ratio carries substantially lower loss severity than an equivalent unsecured bond. Credit rating agencies explicitly adjust ratings upward for the benefit of strong collateral — a senior secured bond may carry a higher rating than the issuer’s general corporate credit rating, reflecting the additional protection that the collateral provides to that specific instrument.

The most important dimensions of collateral quality for credit analysis are liquidity — how quickly and at what discount to fair value the collateral can be liquidated in a default scenario; marketability — whether there is an active secondary market for the asset type; value stability — how much the collateral’s value may decline under the stressed economic conditions that typically coincide with borrower defaults; enforceability — whether the lender’s security interest is properly perfected and takes priority over competing claims; and control — whether the lender has sufficient dominion over the asset to prevent the borrower from disposing of or encumbering it without the lender’s consent before the security interest can be exercised.

Examination Relevance and Key Takeaways

Collateral is tested on the SIE, Series 7, and Series 65 examinations in the context of secured versus unsecured lending, margin accounts, bond security structures, credit risk, and bankruptcy priority. Candidates must understand collateral as an asset pledged as security for a loan, the distinction between secured and unsecured creditors in bankruptcy, the margin account collateral structure under Regulation T and FINRA Rule 4210, and the role of loan-to-value ratios in mortgage lending.

The core points to retain are these: collateral is an asset pledged by a borrower as security for a credit obligation, giving the lender a priority right to seize and liquidate that specific asset ahead of unsecured creditors in the event of default; the legal framework governing security interests in personal property is UCC Article 9, adopted uniformly across all fifty states, which requires attachment of the security interest through a signed security agreement, value given, and borrower rights in the collateral, followed by perfection typically through filing a UCC-1 financing statement to protect against third parties and the bankruptcy trustee; real property collateral is governed by state mortgage law and perfected by recording the mortgage or deed of trust in county records; priority among competing secured creditors follows the first-in-time-first-in-right principle, each creditor’s place dating from the earlier of its filing or its perfection, with purchase money security interests receiving superpriority over prior blanket liens for collateral specifically financed by the PMSI creditor; in margin accounts, the purchased securities serve as collateral for the broker-dealer’s loan under Regulation T, with FINRA Rule 4210 requiring that equity equal at least twenty-five percent of market value and the margin agreement authorising the broker-dealer to liquidate collateral without prior notice when maintenance margin is not maintained; in mortgage lending, the loan-to-value ratio measures collateral adequacy with conventional lenders typically requiring a maximum of eighty percent, and private mortgage insurance required above that threshold; and in bankruptcy, properly perfected security interests give secured creditors priority claims on specific collateral ahead of all unsecured creditors, while unperfected interests may be avoided by the bankruptcy trustee under 11 U.S.C. Section 544.