On April 1, Roe borrowed $100,000 from Jet to pay Roe’s business expenses. On June 15, Roe gave Jet a signed security agreement and financing statement covering Roe’s inventory. Jet immediately filed the financing statement. On July 1, Roe filed for bankruptcy. Under the federal Bankruptcy Code, can Roe’s trustee in bankruptcy set aside Jet’s security interest in Roe’s inventory?
A. Yes, because Roe giving the security interest to Jet created a voidable preference.
B. Yes, because a security agreement may only cover goods actually purchased with the borrowed funds.
C. No, because the security interest was perfected before Roe filed for bankruptcy.
D. No, because the loan proceeds were used for Roe’s business.
Answer:A
A is corrent since preferential transfers include those made within the previous ninety days while insolvent and include those made for antecedent debts including a security interest given by a debtor to secure antecedent debts.
B is incorrect because laws concerning security agreements do not have that stated limitation.
C is incorrect because security interests given by debtors to secure antecedent debts may be set aside by the trustee in bankruptcy when given within the previous ninety days.
D is incorrect because security agreement laws are not limited because the loan proceeds were used for Roe’s business.
