Uniform Commercial Code (UCC) financing statements are crucial in securing a creditor’s interest in personal property. Lenders and other creditors can establish priority over collateral if the debtor defaults. However, a critical element of a UCC 1 filing is ensuring the debtor’s information is correct. A debtor name mismatch can cause the loss of secured interest priority and can result in other disastrous consequences.
Understanding UCC filings
The UCC governs commercial transactions and provides a legal framework for creditors and debtors. UCC 1 financing statements allow creditors to secure an interest in the debtor’s personal property, ensuring the creditor has a claim to the collateral should the debtor default.
A UCC filing is a legal notice that a creditor files. It is a public record. The UCC 1 financial statement not only allows the creditor to recover collateral if the debtor defaults but informs other creditors that the creditor has a secured interest in the collateral.
Information required to complete a UCC 1 financing statement
The key components of a UCC 1 financing statement include:
- Accurate Debtor Names: The person or entity completing the UCC 1 financing statement must use the name provided exactly as it appears on the official documents accepted by the jurisdiction. Debtor name accuracy is crucial to avoid an invalid filing.
- Secured Party’s Name and Address: The creditor must also be accurate.
- Description of Collateral: The description of the collateral must also be accurate. The description can be a description of specific items or a category of assets, but should be specific to avoid any ambiguity.
- Debtor’s Organizational Information: Another critical piece of information for error-free filings is the debtor’s organizational information, including the type and jurisdiction of the organization and the organizational identification number.
Filing error-free filings
Once the UCC 1 filing is completed, you must submit it to the correct filing office. It is usually the debtor’s Secretary of State’s office. In many cases, you can file the UCC 1 financial statement online or by mail. However, it is crucial that the filing is done in the correct jurisdiction and within the stipulated timeframe to maintain the creditor’s interest. Using an online platform such as iLien can ensure filings are created error-free.
Legal name compliance and otherwise correct and timely filing are essential to give the creditor priority over other creditors who might use the same assets as collateral. Errors in the filing, including debtor name mismatch, can cause a rejected filing and loss of priority over other creditors.
Importance of debtor name accuracy
Legal name compliance cannot be overstated. A single error, such as a misplaced space, can create an invalid filing, which can leave the secured party without a legal claim to the collateral. Error-free filings ensure the enforceability of the security interest and maintain the creditor’s priority status.
Examples
The courts have heard several cases regarding accuracy in UCC filings, including:
- In re: Bryant, 630 B.R. (BankR. M.D. Ga. 2021): A bankruptcy case, wherein the court denied relief to the creditor who listed the debtor’s name using only the debtor’s middle initial instead of the debtor’s full middle name as shown on identification documents.
- Pierce v. Farm Bureau: The lien was unperfected because the creditor did not use the debtor’s middle name, as shown on his driver’s license, when filing a UCC statement. According to 11 U.S.C. §544, “a creditor holding an unperfected, or improperly perfected[,] lien against a debtor when a bankruptcy case is filed may be subject to having their lien avoided by the trustee.”
- United States SEC vs. ISC: In this case, the [creditor] made a typo by inserting a space between “Inc” and the period at the end of the word ‘Inc.” The court determined the lien was invalid, and the secured party lost interest.
- In Re: Preston 612 BR 770 (Bankr. D. Kan. (2019): The creditor's financing statements added a period after the middle initial, while there was none on the debtor's license, thus invalidating the creditor's filings as "seriously misleading" and ineligible for protection under the "safe harbor" provisions.
In these types of cases, courts have ruled in favor of the debtors, causing creditor’s to lose millions of dollars because of a debtor name mismatch.
Steps in ensuring debtor name match
Accurate debtor names on a UCC 1 filing are crucial to maintaining the validity and enforceability of your security interest. The steps in ensuring debtor name match include:
- Identify the correct legal name as shown on government-issued identification. If the debtor has more than one form of government-issued identification, ask to see both.
- Cross-check the name on multiple legal documents to ensure consistency. Look for suffixes, middle names, and initials.
- Ensure the spelling and format of all names are correct, including punctuation in the name, such as a comma before “Jr.” or whether “Junior” is spelled out.
- Understand jurisdiction requirements for acceptable legal names. Each jurisdiction may have its own rules and regulations.
- Confirm which documents are acceptable for verifying the debtor’s name. Each state has its own rules, though government-issued identification such as licenses, state IDs, and military IDs are generally accepted.
- Check the state’s business registry to verify an entity’s business name. You can find this information in most states on the Secretary of State’s website.
- Regularly review jurisdictional requirements from state filing offices. Acceptable documentation and naming conventions can change.
- Maintain accurate records. Make a copy of the debtor’s identification to prove that you used the name listed on the ID.
- Use reliable filing systems.
Leave the meticulous task of ensuring debtor name accuracy to a professional UCC filing service
Ensuring debtor name accuracy is critical for protecting your financial interests, both at the time of filing and throughout the life of your security interest. Our filing service proactively verifies and correctly records debtor names on all initial UCC filings. We offer ongoing monitoring and remediation services to maintain the accuracy of your filings. Should a debtor name change or require an update after the initial filing, our team can promptly file UCC-3 amendments to keep your records current and your interests secure. This comprehensive approach helps safeguard your position against potential challenges or lapses in security. For expert assistance with initial filings, updates, or remediation, contact our team of professionals to help you secure and maintain your interests.
