What is a requirement for the 3-part test to maintain perfection in proceeds?

To maintain perfection in proceeds, it is essential that the original security interest was perfected by filing. This requirement stems from the Uniform Commercial Code (UCC), which governs secured transactions. When a secured creditor has an interest in collateral, they must take certain steps, such as filing a financing statement, to perfect that interest. This perfection ensures that the creditor’s rights are enforceable against third parties.

Once the original collateral is sold, exchanged, or otherwise disposed of, the security interest extends to the proceeds derived from that original collateral—as long as the original security interest was properly perfected. This means that if a debtor sells an item that was secured under a perfected security interest, any proceeds from that sale will also be covered under that perfected interest.

This requirement ensures clarity in the priority of claims among creditors, allowing the original secured creditor to have a legal claim on proceeds without having to take additional steps to perfect their interest again. This continuity of perfection is crucial to protecting the rights of secured creditors in a transactional environment.