Livingston on the Ongoing Issue of the Debtor's Name on UCC Article 9 Financing Statements

There are any number of potential pitfalls along the way to properly setting up a secured transaction, but perhaps the most bedeviling stems from the failure to set forth the debtor's name correctly on the financing statement. As a recent bankruptcy court decision reveals, even sophisticated creditors can be led astray in this arena and find themselves with unperfected, avoidable security interests in the event of their debtor's bankruptcy.

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One of the most important tasks of a creditor setting up a secured transaction under Article 9 of the Uniform Commercial Code is to perfect its security interest by filing an appropriate financing statement in the correct public office. There are any number of potential pitfalls along the way to properly completing this task, but perhaps the most bedeviling stems from the failure to set forth the debtor's name correctly on the financing statement. As a recent bankruptcy court decision reveals, even sophisticated creditors can be led astray in this arena and find themselves with unperfected, avoidable security interests in the event of their debtor's bankruptcy. Miller v. State Bank of Arthur (In re Miller), No. 10-92570, 2012 Bankr. LEXIS 70 (C.D. Ill. Jan. 6, 2012) [an enhanced version of this opinion is available to lexis.com subscribers]. Fortunately, the 2010 Amendments to Article 9, which are currently being enacted by the states, may alleviate some of the troublesome problems surrounding the debtor name issue.

Perfection of the creditor's security interest in a debtor's assets is the key to obtaining priority over other claimants to the same assets of the debtor and to avoiding nullification of the security interest by the debtor's trustee in bankruptcy. See U.C.C. §§ 9-317 (Official Text 2009) (giving perfected security interests priority over lien creditors and certain buyers); 9-322 (a) (according perfected senior secured parties priority over later secured parties). See also 11 U.S.C. § 544 (a) (2011) (allowing the trustee in bankruptcy to set aside unperfected security interests) [an annotated version of this statute is available to lexis.com subscribers]. Most commonly, secured parties file financing statements in the appropriate public office to perfect their interests. U.C.C. § 9-310 (a). Only three pieces of information are required on a financing statement the debtor's name, the name of the secured party or its representative, and an indication of the collateral. U.C.C. § 9-502 (a). But the debtor's name is the single most important piece of information on the financing statement because searchers will almost always search for financing statements using it.

In Miller, the husband and wife debtors borrowed money from the State Bank of Arthur ("Bank") and gave the Bank a security interest in all of the assets associated with their unincorporated business, Power Plus. Miller, 2012 Bankr. LEXIS 70, at *2. The Bank filed a financing statement listing the debtors as "Bennie A. Miller" and "Debbie A. Miller" and also including their business trade name, "d/b/a Power Plus." 2012 Bankr. LEXIS 70, at *3. The Bank filed proper continuation statements for the financing statement (originally filed in 1999) in 2003 and 2008. In 2010, the debtors filed for Chapter 13 bankruptcy and sought to avoid the Bank's security interested as unperfected. 2012 Bankr. LEXIS 70, at *3. While conceding that Mrs. Miller's name on the financing statement was correct, the debtors argued that Mr. Miller's name was incorrect, thus rendering the filed financing statement seriously misleading as to his share of the couple's joint assets. 2012 Bankr. LEXIS 70, at *3-4.

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