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). 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). 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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