The Uniform Commercial Code (UCC) is a set of laws that governs commercial transactions in the United States. Article 9 of the UCC deals with secured transactions, which involve the use of collateral to secure a loan or other type of credit transaction. Under Article 9, there are certain types of property that cannot be used as collateral. In this article, we will explore which items fall into this category.

Before we dive into the specifics, it is important to understand what is meant by collateral. Collateral is property that is pledged as security for a loan or other type of credit transaction. If the borrower defaults on the loan, the lender has the right to seize the collateral and sell it to recover the amount owed. In other words, collateral provides a form of assurance for the lender that they will be able to recoup their losses if the borrower fails to repay the loan.

Under Article 9 of the UCC, there are certain types of property that cannot be used as collateral. These include:

1. Future earnings: Future earnings are not considered to be tangible property, and therefore cannot be used as collateral. This means that a lender cannot require a borrower to pledge their future earnings as security for a loan. However, a lender may be able to take a security interest in a specific asset that is expected to generate future earnings, such as a patent or trademark.

2. Personal property that is essential for the debtor's livelihood: Under Article 9, a debtor's personal property that is essential for their livelihood cannot be used as collateral. This includes items such as clothing, tools, and equipment that are necessary for the debtor to earn a living. However, if the debtor has other assets that are not essential for their livelihood, these may be used as collateral.

3. Proceeds from exempt property: Some types of property, such as certain retirement accounts and social security benefits, are exempt from seizure by creditors. Under Article 9, the proceeds from exempt property cannot be used as collateral. This means that a borrower cannot pledge their social security benefits or other exempt property as security for a loan.

4. Consumer goods: Consumer goods are items that are used primarily for personal, household, or family purposes. Under Article 9, consumer goods may be used as collateral, but there are certain restrictions. For example, if the borrower has a security interest in the same item with another lender, the lender may not be able to take a security interest in the same item. Additionally, if the value of the collateral is less than the amount owed, the lender may not be able to recover the full amount of the loan.

5. Intangible property that is not perfected: Intangible property, such as patents, trademarks, and copyrights, may be used as collateral under Article 9. However, in order for the security interest to be valid, the lender must perfect their interest by filing a financing statement with the appropriate state agency. If the lender fails to perfect their interest, the security interest may be invalid.

6. Real property: Real property, such as land and buildings, may be used as collateral under Article 9. However, the process for taking a security interest in real property is different from the process for taking a security interest in personal property. In order to take a security interest in real property, the lender must record a mortgage or deed of trust with the appropriate government agency.

Under Article 9 of the UCC, there are certain types of property that cannot be used as collateral. These include future earnings, personal property that is essential for the debtor's livelihood, proceeds from exempt property, consumer goods, intangible property that is not perfected, and real property. It is important for lenders to understand these restrictions in order to ensure that their security interests are valid and enforceable. Borrowers should also be aware of these restrictions in order to protect their assets and rights.