Georgia Secured Transactions Practice Test

The outcome of improperly filing a financing statement primarily leads to the potential failure to perfect the security interest or establish priority among creditors. In the context of secured transactions, the perfection of a security interest is crucial because it not only provides public notice of the lender’s claim against the collateral but also establishes the lender’s priority over other creditors who may have claims against the same collateral.

If a financing statement is filed incorrectly, such as having incorrect information or being filed in the wrong jurisdiction, this can render the filing ineffective for perfection purposes. Without proper perfection, a secured creditor may lose their priority rights in favor of other creditors who might have perfected their security interests correctly. This creates a significant risk for the lender, as they may not have the legal protections they intended against competing creditors.

Thus, the correct understanding of the effect of an improper filing is that it creates the possibility of failing to perfect the security interest, which in turn affects priority rights in a situation where multiple parties have an interest in the same collateral.