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Perfected Security Interests vs. Writs of Garnishment

On August 18, 2008 by Schnader

A creditor with a perfected security interest in its debtor’s bank account might not want to risk forcing its debtor out of business by seizure of its funds or freezing of its bank accounts. Rather, in order to make collection of its entire loan more probable, the bank might prefer that the debtor use its property to operate its business with the funds in its bank account. Similarly, third parties dealing with the debtor may be reluctant to accept funds from a bank account subject to a perfected security interest if the bank or another creditor could stake a claim to those funds as a result of their security interest.

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