A perfected security interest in proceeds becomes unperfected on the 21st day after attachment unless which condition is satisfied?

A perfected security interest in proceeds becomes unperfected on the 21st day after attachment unless which condition is satisfied?

• A. Immediately upon disposition
• B. The proceeds are identifiable cash proceeds or the interest in proceeds is perfected within 20 days
• C. After one year
• D. The debtor files bankruptcy

Answer: (B)

The concept being tested is how a perfected security interest continues in proceeds. When a security interest is perfected in the original collateral, it extends to the proceeds, but only for a limited window unless certain conditions are met. The protection lasts for 20 days after the debtor receives the proceeds. If the proceeds are identifiable cash proceeds, perfection continues automatically. If the proceeds are not cash, the secured party must perfect in the proceeds within that 20-day window. If neither condition is met, the security interest in the proceeds becomes unperfected on the 21st day. This is why the best answer states that the proceeds must be identifiable cash proceeds or the interest in the proceeds must be perfected within 20 days.

The concept being tested is how a perfected security interest continues in proceeds. When a security interest is perfected in the original collateral, it extends to the proceeds, but only for a limited window unless certain conditions are met. The protection lasts for 20 days after the debtor receives the proceeds. If the proceeds are identifiable cash proceeds, perfection continues automatically. If the proceeds are not cash, the secured party must perfect in the proceeds within that 20-day window. If neither condition is met, the security interest in the proceeds becomes unperfected on the 21st day. This is why the best answer states that the proceeds must be identifiable cash proceeds or the interest in the proceeds must be perfected within 20 days.