A secured party perfects a security interest in order to help assure that no other party, such as another creditor or a bankruptcy trustee, will be able to claim the same collateral in the event that the debtor becomes insolvent.

Why should a security interest be perfected?

When a creditor perfects his security interest via possession, perfection occurs immediately. The advantage of perfecting a security interest by possession is that the debtor can't damage the collateral or take steps that could threaten the secured party's rights because the debtor doesn't possess it.

What happens if a security interest is not perfected?

Under the Bankruptcy Code, a trustee or debtor in possession has the rights of a perfected lien creditor and an unperfected security interest may be avoided, so that the underlying claim is treated as a general unsecured claim in bankruptcy.