Define: Chattel Paper

Chattel paper is a legal term that refers to a document that evidences both a monetary obligation and a security interest in specific goods.

There are two types of chattel paper: tangible chattel paper, which is a physical document, and electronic chattel paper, which exists in electronic form.

Chattel paper is created when a security agreement is signed, and a monetary obligation is incurred, resulting in a document that represents both the obligation and the security interest in specific goods.

Chattel paper is significant in a secured transaction because it serves as evidence of the security interest in specific goods, providing protection for the secured party in the event of default by the debtor.

Chattel paper can be transferred by assignment, which involves the transfer of both the monetary obligation and the security interest to a new party.

A secured party has the right to enforce the security interest in the chattel paper, including the right to repossess the specific goods if the debtor defaults on the monetary obligation.

To perfect a security interest in chattel paper, the secured party must file a financing statement with the appropriate government agency and provide notice to any competing security interests.

If chattel paper is lost or destroyed, the secured party may still be able to enforce their security interest by providing alternative evidence of the obligation and security interest.

Yes, chattel paper can be used as collateral for a loan, providing security for the lender in the event of default by the borrower.

Improperly handling chattel paper, such as failing to properly perfect a security interest, can result in the loss of priority to competing creditors and may limit the secured party’s ability to enforce their security interest.