What determines the priority of competing claims on collateral?

The priority of competing claims on collateral is determined primarily by the time of perfection of each claim. Perfection refers to the legal process that establishes the right of the secured party against third parties concerning the collateral. In general, the first creditor to perfect their security interest is given priority over subsequent creditors with competing interests in the same collateral. This means that if one claim is perfected before another, it will take precedence in the event of default or bankruptcy.

The perfection process usually involves either filing a financing statement, taking possession of the collateral, or obtaining control over the collateral, depending on the type of collateral. Thus, the timing of when this perfection occurs is crucial in establishing who has the superior claim.

While factors such as the amount of claims or the nature of the collateral might be relevant in other contexts, they do not directly affect the order of priority established through the perfection of security interests, making the timing of perfection the decisive factor.