Define: Purchase Money Security Interest

A Purchase Money Security Interest (PMSI) is a legal term that refers to a security interest taken by a creditor in the collateral purchased by the debtor. It provides the creditor with priority over other creditors in case of default or bankruptcy.

PMSIs commonly arise in transactions where a debtor purchases goods or equipment on credit, such as buying a car or obtaining financing for business equipment.

To perfect a PMSI, the creditor must typically file a financing statement with the appropriate government agency, such as the Secretary of State’s office. This filing puts other creditors on notice of the creditor’s security interest.

If a debtor defaults on a PMSI, the creditor has the right to repossess the collateral and sell it to satisfy the debt. The creditor’s priority status allows them to recover their debt before other creditors.

Yes, in some cases, a PMSI can be subordinate to other security interests if the creditor fails to properly perfect their interest or if the debtor has pre-existing security interests in the collateral.

Yes, a PMSI can be transferred to another creditor through an assignment or sale. However, the new creditor must also properly perfect their interest to maintain priority over other creditors.

Yes, a PMSI can be discharged or released if the debtor pays off the debt in full or if the creditor voluntarily releases their security interest. This typically requires a written agreement between the parties.

In bankruptcy, a PMSI is generally given priority over other creditors, allowing the creditor to recover their debt from the collateral before other claims are satisfied. However, specific bankruptcy laws and procedures may vary.

Yes, a properly perfected PMSI can be enforced against third parties who may claim an interest in the collateral, such as subsequent purchasers or other creditors.

Yes, there may be limitations or restrictions on PMSIs depending on the jurisdiction and specific circumstances. It is important to consult with a legal professional to understand the applicable laws and requirements.