REG debtor-creditor coverage for guarantor liability, bankruptcy basics, secured transactions, and priority rules.
This chapter explains the legal framework that applies when obligations are owed, secured, defaulted on, or discharged. Many REG questions in this area depend on ranking claims, identifying the effect of bankruptcy, and knowing how security interests become enforceable against others.
Debtor-creditor questions should be solved by identifying the claimant’s status. A guarantor, unsecured creditor, secured creditor, bankruptcy trustee, or perfected secured party can have very different rights in the same asset or default scenario.
| Issue | First question | Common REG trap |
|---|---|---|
| Debtors, creditors, and guarantors | Who is primarily liable and who has secondary or contingent exposure? | Treating guarantor liability as identical to debtor liability. |
| Bankruptcy | Has an automatic stay, discharge, preference, or bankruptcy priority rule changed the ordinary result? | Applying normal collection logic after bankruptcy begins. |
| Secured versus unsecured status | Did the creditor obtain an enforceable security interest? | Assuming a creditor is protected because collateral is mentioned. |
| Perfection and priority | Was the security interest perfected, and where does it rank against competing claims? | Confusing attachment with perfection or priority. |
| Step | What to do | Why it matters on REG |
|---|---|---|
| 1. Identify each party’s status | Separate debtors, primary creditors, guarantors, secured parties, unsecured creditors, trustees, and competing claimants. | Rights and defenses depend on legal status, not only on who is owed money. |
| 2. Determine whether bankruptcy has begun | Check for an automatic stay, discharge issue, preference risk, or bankruptcy priority rule. | Bankruptcy can suspend collection and replace ordinary creditor remedies. |
| 3. Test attachment | Decide whether value was given, the debtor had rights in collateral, and the security agreement or possession/control requirement is satisfied. | A creditor has no enforceable security interest until attachment occurs. |
| 4. Test perfection | Determine whether filing, possession, control, or automatic perfection applies. | Perfection affects rights against third parties and competing creditors. |
| 5. Rank competing claims | Apply priority rules, purchase-money rules, fixture issues, buyer rules, or bankruptcy priorities as applicable. | REG questions often turn on who gets paid first after more than one party has a plausible claim. |
| Checkpoint | Exam use | What to avoid |
|---|---|---|
| Party status | Identify debtor, creditor, guarantor, secured party, unsecured creditor, trustee, buyer, or competing claimant. | Assuming everyone owed money has the same remedy. |
| Bankruptcy effect | Check automatic stay, discharge, preference, priority, and trustee powers before ordinary collection rules. | Applying normal creditor remedies after bankruptcy changes the legal posture. |
| Attachment | Verify value, debtor rights in collateral, and an authenticated security agreement or possession/control. | Treating collateral language as enough to create an enforceable security interest. |
| Perfection method | Determine filing, possession, control, automatic perfection, or fixture filing where relevant. | Confusing attachment with protection against third parties. |
| Priority rule | Rank claims using perfection timing, PMSI rules, buyer rules, fixture rules, or bankruptcy priorities. | Choosing the creditor with the strongest contract before applying statutory priority. |