When two creditors have a security interest in the same collateral, the question of priority arises. Priority refers to the order in which creditors will be paid in the event of default by the borrower. In other words, which creditor will have the first right to the collateral.

The answer to this question depends on the type of security interest each creditor has in the collateral. There are two types of security interests: perfected and unperfected.

A perfected security interest is one that has been properly filed with the appropriate government agency, such as the Secretary of State's office. Filing a security interest puts other creditors on notice that the collateral is already encumbered and that the creditor filing the security interest has a claim to it.

An unperfected security interest is one that has not been properly filed. In this case, other creditors may not be aware of the creditor's claim to the collateral.

When two creditors have a security interest in the same collateral, the creditor with the perfected security interest takes priority over the creditor with the unperfected security interest. This is because the perfected security interest was filed first and, therefore, the other creditors were put on notice of the creditor's claim to the collateral.

However, if both creditors have perfected security interests in the same collateral, the priority is determined by the first to file rule. This means that the creditor who filed their security interest first has priority over the creditor who filed later.

For example, if a borrower takes out a loan from two different lenders and uses the same piece of equipment as collateral, the lender who files their security interest first will have priority over the second lender. If both lenders file their security interests on the same day, the lender who files their security interest first will still have priority.

It is important to note that priority can also be affected by the type of collateral involved. For example, if the collateral is a motor vehicle, priority may be determined by the state's motor vehicle laws. In some states, the first lender to file their security interest has priority, while in other states, priority is determined by the date of the loan agreement.

Another factor that can affect priority is the type of security interest. For example, if one creditor has a purchase money security interest (PMSI), which is a security interest in collateral that secures the purchase price of the collateral, they may have priority over other creditors.

In general, a PMSI creditor will have priority over other creditors if they file their security interest within a certain time period after the borrower takes possession of the collateral. This time period varies depending on the type of collateral and the state's laws.

For example, if a borrower purchases a piece of equipment and finances it through a PMSI loan, the creditor with the PMSI will have priority over other creditors if they file their security interest within 20 days of the borrower taking possession of the equipment. This is because the PMSI creditor's security interest is considered to be attached to the collateral at the time of the purchase.

When two creditors have a security interest in the same collateral, priority is determined by the type of security interest and whether it has been perfected or unperfected. The creditor with the perfected security interest takes priority over the creditor with the unperfected security interest. If both creditors have perfected security interests, the priority is determined by the first to file rule. Other factors that can affect priority include the type of collateral and the type of security interest, such as a PMSI. It is important for creditors to properly file their security interests and be aware of the laws that govern priority in their state.