Security Interests in Property
A purchase money security interest (PMSI) is one in which you borrowed money to purchase the item, as in the case of buying cars, houses, furniture, electronic equipment, computers and other expensive items. However, in the case of a PMSI you may elect to redeem the item secured by the creditor. Simply put, you must pay the creditor the fair market price for the item you are redeeming. The largest drawback when redeeming the property is that the creditor gets to determine the terms of the redemption process. Usually those terms require a cash payment at the time of redemption. In contrast, you may not be required to return items in which you gave a creditor a non-purchase money security interest (NPMSI).
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An NPMSI is security interest where you borrowed the money from a creditor and given the creditor a security interest in things you already own. Usually you and the attorney have discussed this situation and made a determination to file documents with the court to cancel the NPMSI. This simply means you will get to keep those items you put up for security. However, there are some instances in which you will be required to pay to keep the items subject to an NPMSI. For instance, if you gave a car title to a pawn shop when you borrowed money, you will be required to pay the pawn shop in order to keep your car. Another example is when you borrow money and give the creditor a deed to secure debt on your home to secure the debt. Your attorney will tell you if any of your NPMSI creditors fall within this category. So, it is important you point out to your attorney or his staff any creditor you gave a security interest in property you owned prior to making the loan.
An unsecured creditor is a creditor that does not have a security interest in your real property or personal property. Generally speaking, credit card companies are unsecured creditors. However, there are exceptions to this general statement. If you visit a store and set up a purchase on credit and they issue you a credit card, even though the credit card is issued by a bank, your purchases, including the one made at the time the credit account was set up on that credit card are more than likely secured by a PMSI.
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