UCC definition of income causing collateral description headaches on filing
Been wrestling with this for weeks and getting nowhere fast. Working on a UCC-1 for a client who's got mixed revenue streams - rental properties, consulting fees, and some investment dividends. The collateral description needs to cover "proceeds and income" but I'm second-guessing myself on what exactly qualifies as income under UCC definitions versus just general accounting income. Our SOS rejected the first filing because the collateral schedule was apparently too vague when I just wrote "all income and proceeds derived from debtor's business operations." Got a form letter saying insufficient description. Now I'm trying to be more specific but worried about being either too broad or too narrow. Anyone dealt with similar income classification issues? The debtor has about $180K annually from various sources and we need to perfect our security interest properly. Don't want to mess this up again - client's already annoyed about the delay.
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Keisha Taylor
Income under UCC is tricky because it's not always the same as tax income. For collateral purposes, you're typically looking at proceeds generated from the collateral itself, not necessarily all income sources. Rental income from real estate collateral would qualify, but consulting fees might need separate treatment depending on the underlying assets.
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Yara Khoury
•That's exactly what I was afraid of. So I need to break down each income stream and tie it back to specific collateral? This is getting complicated fast.
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Paolo Longo
•Yeah the SOS systems are picky about collateral descriptions now. They want specificity not generic language.
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Amina Bah
Had this same issue last month! The key is distinguishing between "proceeds" (what comes from selling/using the collateral) and "income" (broader revenue). For UCC purposes, you usually want proceeds language. Try something like "all proceeds from rental of real property, accounts receivable from consulting services, and investment proceeds" instead of generic income language.
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Yara Khoury
•That makes sense. So I should be thinking proceeds-focused rather than income-focused for the collateral description?
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Amina Bah
•Exactly. Proceeds has a specific UCC meaning - it's what you get when collateral is sold, licensed, or otherwise generates value. Much cleaner for filing purposes.
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Oliver Becker
•This is why I always get nervous about mixed collateral types. Too easy to mess up the descriptions.
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CosmicCowboy
I actually found a tool that helps with this kind of document verification. Certana.ai has this UCC document checker where you can upload your filing docs and it cross-references everything for consistency. Caught a similar proceeds vs income issue for me before I submitted. Just upload your UCC-1 draft and any supporting docs, it flags potential description problems.
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Yara Khoury
•Interesting, never heard of that service. Does it actually understand the nuances between different types of income and proceeds?
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CosmicCowboy
•Yeah it's pretty thorough. Picks up on vague language that might get rejected and suggests more specific alternatives. Saved me from another rejection cycle.
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Paolo Longo
•Anything that prevents SOS rejections is worth looking into. Those delays kill deals.
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Natasha Orlova
The UCC definition of income isn't really standardized across all contexts. Are we talking Article 9 secured transactions? Because that's where most of the proceeds language comes into play. The official UCC text focuses more on proceeds than income per se.
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Yara Khoury
•Yes, Article 9 secured transaction. So I should be focusing on the proceeds definitions rather than trying to define income separately?
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Natasha Orlova
•Absolutely. UCC 9-102 defines proceeds pretty clearly. Income is more of a tax/accounting concept.
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Javier Cruz
God I hate these vague collateral description requirements. Every SOS office seems to have different standards for what's acceptable. What works in one state gets rejected in another.
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Emma Thompson
•Tell me about it. Spent three rounds of filings last year because of description issues.
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Malik Jackson
•That's why I always err on the side of being overly specific now. Better too much detail than another rejection.
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Javier Cruz
•Yeah but then you run into the "too broad" rejections. Can't win sometimes.
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Isabella Costa
For your specific situation with rental income, consulting fees, and investment dividends - I'd categorize them separately in the collateral description. "Rental income and proceeds from real property located at [addresses], accounts receivable from consulting services, and proceeds from investment securities." Much cleaner than trying to lump everything under generic income language.
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Yara Khoury
•That's really helpful. Breaking it down by source type makes way more sense than my original approach.
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Isabella Costa
•Exactly. Each income stream probably has different underlying collateral anyway, so treat them accordingly.
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StarSurfer
Wait are you trying to perfect a security interest in the income itself or in the assets that generate the income? Because that changes everything about how you'd describe the collateral.
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Yara Khoury
•Both actually. The underlying assets plus the income streams they generate. It's for a comprehensive business loan.
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StarSurfer
•OK that makes it clearer. You definitely need the proceeds language then, not just the asset descriptions.
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Natasha Orlova
•Right, because income/proceeds can be collateral in their own right under Article 9.
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Keisha Taylor
One thing to watch out for - make sure your debtor name matches exactly across all the income sources. If the rental properties are in an LLC but consulting is individual, you might need separate filings or very careful entity descriptions.
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Yara Khoury
•Oh crap, didn't even think about that. The rental properties are in an LLC but the consulting is personal income. Does that complicate the collateral description?
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Keisha Taylor
•Potentially yes. You can't perfect a security interest in LLC assets under an individual's name or vice versa.
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Amina Bah
•This is getting into entity structure territory. Might need separate UCC-1s depending on how the assets are held.
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Ravi Malhotra
Just went through something similar with Certana.ai's document checker. Uploaded my UCC-1 along with the loan docs and it flagged that my collateral description wasn't matching the security agreement language. Super helpful for catching those consistency issues before filing.
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Yara Khoury
•That's actually exactly what I need. My security agreement probably has different language than what I'm putting on the UCC-1.
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Ravi Malhotra
•Yeah it cross-references everything. Really thorough about matching terminology between documents.
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Freya Christensen
The investment dividends part is interesting. Those would typically be classified as proceeds from investment securities, not income in the UCC sense. Make sure you're being precise about the characterization.
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Yara Khoury
•Good point. So "investment proceeds" rather than "dividend income" for UCC purposes?
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Freya Christensen
•Exactly. Proceeds language is almost always better for UCC filings.
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CosmicCowboy
•This is why that document checker I mentioned earlier is so useful. It catches these terminology distinctions.
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Omar Hassan
Update us when you get it figured out! Always curious how these mixed-income situations get resolved. The $180K annual amount suggests this is a substantial filing so you definitely want to get it right.
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Yara Khoury
•Will do. Going to revise the collateral description based on all this feedback and probably check out that document verification service too.
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Isabella Costa
•Smart approach. Better to double-check everything than deal with another rejection.
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