Chattel

DEFINITION of 'Chattel'

Chattel is movable personal property that can be borrowed against using a chattel mortgage.

In accounting, chattel property and other personal property is tracked separately from land or improvements made to land because it can be depreciated more quickly. Additionally, legal systems consider rights to chattel differently compared to rights afforded to real property, with rights to real property typically having longer statutes of limitations and being harder to overturn.

BREAKING DOWN 'Chattel'

In the financial world, chattel refers to movable personal property such as jewelry or furniture. Immovable property, such as real estate or buildings, is not chattel. Chattel’s value drops rapidly due to depreciation, as seen when buying a car, and typically does not increase with improvements. Real property is different, as it increases in value through improvements and renovations. For this reason, chattel is treated differently than real estate for taxation and other financial assessments. For a deceased person’s estate, chattel is tangible, movable property excluding money, securities or property used for business purposes or investments. For a bill of sale, chattel includes goods, furniture, trade machinery and other movable articles as well as growing crops or fixtures separately assigned or charged.

Examples of Chattel

A chattel mortgage provides freestanding property other than a home as collateral for a loan. This secured transaction is obtained through a financial institution. Movable personal property such as cars, boats, trailers, mobile homes or appliances are used as collateral when buying a movable property. The lender secures a mortgage over the chattel, and legal ownership of the chattel is transferred to the lender. The mortgage is removed when the loan is repaid. For example, companies use chattel mortgages to buy property and authorize operational equipment, vehicles or other company assets as collateral. If the company defaults on the loan, the lender is quickly compensated by selling the movable security.

A chattel paper is a document containing information about a financial obligation pertaining to a security interest held by a creditor. The security is often a lien on a piece of movable property. For example, an equipment rental company rents equipment to a company and retains a lien on the equipment. If the company fails to fulfill the lease payments, the rental company takes the equipment back. Similarly, if goods are sold on credit, a chattel paper is drawn up giving the seller the right to take back the goods if the obligation is not paid according to the contract.