A New Twist on Debtor Names on U.C.C. Article 9 Financing Statements

Public filing of a financing statement is the common method of achieving perfection of a security interest. Article 9 is unforgiving towards debtor name errors because the debtor's name is the gateway to the filing system. A recent federal district court case reveals that more than a decade after Revised Article 9 went into effect, the problem of choosing the right name when an individual debtor has multiple names remains a thorny one.

Excerpt:

In setting up secured transactions under Article 9 of the Uniform Commercial Code, creditors are rightly concerned about getting the mechanics of the public filing correct. Public filing of a financing statement is the most common method of achieving perfection of a security interest, and perfection leads to priority over most other claimants to the debtor's collateral and to survival of the security interest in the event of the debtor's 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). In filling out a financing statement, the secured party must ensure that the debtor's name is accurate. Article 9 is unforgiving towards debtor name errors because the debtor's name is the gateway to the filing system. A recent federal district court case reveals that more than a decade after Revised Article 9 went into effect in most states, the problem of choosing the right name when an individual debtor has multiple names remains a thorny one. State Bank of Arthur v. Miller (In re Miller), No. 12-CV-02052, 2012 U.S. Dist. LEXIS 116275 (C.D. Ill. Aug. 17, 2012).

In Miller, the Bank made a series of loans to a husband and wife, Bennie A. and Debbie A. Miller. On January 7, 1999, the Bank filed a financing statement covering certain assets of the debtors and listing the debtors as "Bennie A. Miller" and "Debbie A. Miller." 2012 U.S. Dist. LEXIS 116275, at *2. Mr. Miller also signed the financing statement as "Bennie A. Miller." The Bank filed proper continuation statements in 2003 and 2008. 2012 U.S. Dist. LEXIS 116275, at *2.

On December 22, 2010, the debtors filed for Chapter 13 bankruptcy and listed the Bank as a secured creditor. Miller, 2012 U.S. Dist. LEXIS 116275, at *3. Six months later the debtors sought to avoid the Bank's security interest, arguing that the Bank incorrectly set forth the husband debtor's name as "Bennie A. Miller" on the financing statement and that the proper name for the financing statement was his legal name, "Ben Miller," as listed on his birth certificate. The bankruptcy court found in favor of the debtors and allowed them to avoid the Bank's security interest in the husband debtor's fifty percent share of the couple's assets. The Bank then appealed to the federal district court. 2012 U.S. Dist. LEXIS 116275, at *3-4.

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11 U.S.C. § 544

State Bank of Arthur v. Miller (In re Miller), No. 12-CV-02052, 2012 U.S. Dist. LEXIS 116275 (C.D. Ill. Aug. 17, 2012)