When a person or business borrows money, or purchases or leases goods on credit (without paying the full purchase price up-front), the credit extended to the borrower (1) may be secured/collateralized by money or other assets, or (2) may be unsecured. For example, if your business takes out a loan from the bank, the bank will likely require you to pledge certain assets as security or collateral for the loan—and if you default on the loan, the bank may use the legal process (attachment, repossession) to gain ownership of those pledged assets to satisfy the debt.
Other transactions in which a creditor extends credit to your business may be unsecured—such as the bank that issues your business credit card without requiring you to pledge specific assets as collateral in case you fail to make the payments. But even an unsecured creditor can file a lawsuit against you or use other means to collect the debt you agreed to repay. The law of secured transactions is generally governed by the uniform commercial code (UCC), which has been adopted and made the law in some form in most states.
In Texas, the law of secured transactions is governed by the Uniform Commercial Code (UCC), which Texas has adopted. When a person or business in Texas borrows money or obtains goods on credit, the credit may be either secured or unsecured. Secured credit involves the borrower pledging assets as collateral. For instance, if a business takes out a loan, the lender may require the business to secure the loan with its assets. If the business defaults on the loan, the lender can use legal processes such as attachment or repossession to claim the pledged assets to satisfy the debt. On the other hand, unsecured credit does not involve collateral. Credit cards are a common example of unsecured credit. While unsecured creditors do not have an initial claim to specific assets of the borrower, they can still take legal action to collect the debt, such as filing a lawsuit. It's important for borrowers to understand the terms of any credit agreement and the rights of creditors under Texas law.
