Purchase Money Security Agreement and Bankruptcy

What is a Purchase Money Security Interest?

The Texas Business and Commerce Code adopts the Federal Uniform Commercial Code to create what is generally called the Texas UCC code. Section 9.103 defines Purchase Money Security Interest.  Below is an edited version that applies to consumer purchases. Click Here for a link to the full code section

The PMSI status is important because it makes the loan for consumer goods your purchased Secured versus Unsecured. Unsecured debt, something you may have purchased on your VISA or Mastercard, is generally going to be dischargeable in a bankruptcy. Secured Debt is not dischargeable and will have to be paid if you want to retain the items. Make sure to read the "fine print" when you make purchases, especially for electronics and furniture.

Sec. 9.103. PURCHASE-MONEY SECURITY INTEREST; APPLICATION OF PAYMENTS; BURDEN OF ESTABLISHING. (a) In this section:

(1) "Purchase-money collateral" means goods or software that secures a purchase-money obligation incurred with respect to that collateral.

(2) "Purchase-money obligation" means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.

(b) A security interest in goods is a purchase-money security interest:

(1) to the extent that the goods are purchase-money collateral with respect to that security interest;

(2) if the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase-money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security interest.