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 New York, the law of secured transactions is governed by Article 9 of the Uniform Commercial Code (UCC), which has been adopted in the state. When a business or individual borrows money or obtains goods on credit, the credit may be either secured or unsecured. Secured credit involves the borrower pledging assets as collateral, which the lender can claim through legal processes like attachment or repossession if the borrower defaults on the loan. For instance, if a business takes out a loan, the bank may require the business to secure the loan with property or equipment. If the business fails to repay the loan, the bank can take possession of the collateral 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 the borrower's assets, they can still pursue legal action, such as filing a lawsuit, to collect the outstanding debt. It's important for borrowers to understand the terms of their credit agreements and the potential consequences of default, whether the credit is secured or unsecured.