Ability of debtor to negotiate preferred security for existing debt despite existence of other secured credtitors

Under certain circumstances, a creditor can take a security for a pre-existing debt if that creditor advances more money to the debot with the honest belief that the advance will enable the debtor to continue in business and to pay his or her debts in full.  But, if the creditor is fully aware that the debtor is insolvent, and requires additional security for more debt advances, then the security over pre-existing debt may be held fraudulent and void.  See the Fraudulent Preference Act.
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