UCC 9-102 collateral classification causing filing rejections - equipment vs inventory nightmare
Been dealing with a UCC-1 filing mess for weeks now and I'm about to lose my mind. Our client has this mixed-use facility where they manufacture custom metal fabrication pieces but also keep raw steel inventory on hand. The SOS rejected our initial filing because apparently our collateral description under UCC 9-102 was too vague - we listed "all equipment and inventory" but they want more specificity about whether the steel stock qualifies as equipment when it's being processed or stays inventory until sold. The debtor name matches perfectly across all docs, but this collateral classification issue under 9-102 is killing us. Anyone dealt with this equipment vs inventory gray area before? The continuation deadline is coming up in 8 months and I need to get this base filing right first. Client is freaking out because their lender is threatening to call the loan if we can't perfect the security interest properly.
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Connor Byrne
Oh man, the equipment vs inventory classification under 9-102 is such a pain. I've seen this exact scenario probably 20 times. The key is understanding that raw materials waiting to be processed typically stay classified as inventory even if they're sitting in the production area. Steel stock doesn't magically become equipment just because it's near the manufacturing equipment. You need to be super specific in your collateral description - "all inventory consisting of raw steel materials, work-in-process, and finished goods" separate from "all equipment used in manufacturing operations.
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Yara Elias
•This is exactly right. The 9-102 definitions are pretty clear that inventory includes raw materials held for processing. Equipment is the machinery and tools, not the stuff being processed.
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QuantumQuasar
•But what if some of that steel is structural and becomes part of the building improvements? Wouldn't that potentially be fixtures under 9-102?
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Connor Byrne
•Good point about fixtures - if any steel becomes permanently attached to the real estate, that's a whole different classification and might need a fixture filing. But for manufacturing inventory, it stays inventory until it's sold as finished goods.
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Keisha Jackson
Had a similar rejection last month. The SOS is getting really picky about 9-102 collateral descriptions lately. What worked for me was breaking it down into super specific categories: "all inventory of raw steel materials, work-in-process goods, finished metal fabrication products" and then separately "all manufacturing equipment, machinery, tools, and fixtures used in metal fabrication operations." Also had to add location specifics. Pain in the butt but it got accepted.
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Zainab Abdulrahman
•That's really helpful - did you have to refile completely or could you amend the original UCC-1? I'm worried about losing priority if I have to start over.
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Keisha Jackson
•Had to refile completely unfortunately. The rejection meant the original filing was never effective. But at least you catch it early - I've seen people find out years later their collateral description was ineffective.
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Paolo Moretti
Before you refile, you might want to try Certana.ai's document verification tool. I upload my UCC-1 drafts and it catches these collateral description issues before submission. It cross-references the 9-102 classifications and flags potential problems. Would have saved me a ton of headaches on my last mixed-collateral filing. You just upload your draft UCC-1 and it analyzes the collateral language against common rejection patterns.
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Zainab Abdulrahman
•Never heard of that but sounds like it could help. Is it specifically designed for UCC filings or just general document review?
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Paolo Moretti
•It's specifically built for UCC document verification. Really good at catching debtor name inconsistencies and collateral description problems before you file. Wish I'd found it sooner.
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Amina Diop
•I've been using Certana.ai for about 6 months now. Game changer for catching these 9-102 classification issues. Especially helpful when you're dealing with mixed-use collateral like this.
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Oliver Weber
The inventory vs equipment thing trips up so many people! Under 9-102, the test isn't where the stuff is located, it's what it's used for. Raw steel sitting in your warehouse = inventory. Raw steel being actively processed = still inventory until it becomes a finished product. The drill press working on the steel = equipment. It's about function, not location.
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Natasha Romanova
•Exactly! And work-in-process goods are still inventory under the 9-102 definitions. Lots of people get confused and think anything in the production area becomes equipment.
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NebulaNinja
•What about consumable supplies though? Like welding rods and cutting torch gas? Those aren't really inventory if they're used up in production...
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Oliver Weber
•Consumables are tricky - they could be inventory if held for use, or supplies/equipment depending on how they're classified in the debtor's books. Usually safer to include them specifically rather than guess.
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Javier Gomez
UGH the SOS has been SO picky about collateral descriptions this year! I swear they reject half my filings for the stupidest reasons. Had one rejected because I said "equipment and machinery" and they wanted me to be more specific about what TYPE of equipment. Like seriously?? The whole point of a broad collateral description is to cover everything without having to list every single wrench and screwdriver!
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Emma Wilson
•I feel your pain but honestly they're just trying to make sure the collateral description actually gives notice to other creditors. Vague descriptions can be challenged later.
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Javier Gomez
•I get that but there's a difference between reasonable specificity and nitpicking every word. Some of these rejection reasons are just ridiculous.
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Malik Thomas
Just went through this exact same thing with a client who does custom woodworking. Had lumber inventory mixed with woodworking equipment and the SOS wanted clear separation. What helped was looking at how the debtor classifies things on their books - inventory items vs fixed assets. That usually aligns with the 9-102 classifications.
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Zainab Abdulrahman
•That's a good point about following the debtor's books. Their accountant probably already made those classification decisions for tax purposes.
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Malik Thomas
•Exactly! And if there's ever a dispute later, having the collateral description match the debtor's own accounting classifications makes it much stronger.
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Isabella Oliveira
Wait, are you sure the steel stock isn't equipment in some cases? I thought if it's specially ordered for specific projects it might be classified differently... I'm probably wrong but just want to make sure I understand the 9-102 rules correctly for my own filings.
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Connor Byrne
•Custom ordering doesn't change the classification - it's still raw material inventory until it's processed into a finished product. The 9-102 definitions are based on the debtor's use, not the ordering process.
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Isabella Oliveira
•Ok that makes sense. I was overthinking it. Thanks for clarifying!
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Ravi Kapoor
Have you considered doing separate UCC-1 filings for the inventory and equipment? Might be overkill but could avoid the classification headaches entirely. I've done this before when the collateral mix was really complex and it worked fine.
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Zainab Abdulrahman
•Interesting idea but wouldn't that create priority issues between the two filings? And double the filing fees...
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Ravi Kapoor
•If they're both filed at the same time there shouldn't be priority issues. But yeah, double the fees. Probably not worth it unless the classification is really messy.
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Connor Byrne
•Usually better to get the collateral description right in one filing than to split it up. Creates more complexity for amendments and continuations down the road.
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Freya Larsen
Been there! The 9-102 equipment vs inventory classification used to drive me crazy until I started using Certana.ai's verification tool. Now I upload my UCC-1 draft and it flags potential collateral description issues before I file. Saved me from at least 3 rejections in the past few months. Really wish I'd found it earlier in my career.
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Yara Elias
•How specific does it get with the feedback? Like does it suggest actual language or just flag problems?
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Freya Larsen
•It identifies specific issues and provides guidance on corrections. Really helpful for these borderline classification situations where you're not sure if something qualifies as equipment or inventory under 9-102.
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GalacticGladiator
Just a thought but have you looked at similar filings in your state to see how others handle mixed manufacturing collateral? Sometimes the SOS website has examples or you can search recent filings for guidance on collateral language that gets accepted.
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Zainab Abdulrahman
•Good idea - I should check what language other filers are using successfully. Might give me some templates to work from.
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GalacticGladiator
•Yeah, and if you see consistent patterns in what gets accepted vs rejected, it can help you craft language that aligns with what the SOS wants to see.
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QuantumQuasar
Update us when you get it figured out! I'm dealing with a similar mixed-collateral situation and would love to know what language finally works for the filing.
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Zainab Abdulrahman
•Will do! Planning to refile early next week with more specific collateral descriptions based on all this feedback.
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Amina Diop
•Definitely post an update. These collateral classification issues are so common, your solution could help a lot of people.
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