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 Kentucky, as in most states, the law of secured transactions is governed by Article 9 of the Uniform Commercial Code (UCC), which the state has adopted. When a person or business in Kentucky borrows money or obtains goods on credit, the creditor may require collateral to secure the debt. This means that the borrower must pledge assets such as property or equipment, which the creditor has a right to repossess or foreclose upon in the event of default. Secured creditors have priority over unsecured creditors in claiming the borrower's assets. On the other hand, unsecured credit does not involve collateral, but creditors still have legal means to collect debts, such as filing a lawsuit or obtaining a judgment to garnish wages or attach assets. It's important for businesses to understand the terms of any credit agreement and the rights of creditors under Kentucky law, and they may wish to consult with an attorney to navigate these issues.