Using the Debtor’s Correct Name

According to a recent Indiana bankruptcy case, In re Nay, 563 B.R. 535 (S.D. Ind. 2017), missing one letter in a debtor’s name on a financing statement may alter a creditor’s secured status. In the case, MainSource Bank perfected a blanket security interest in Ronald Markt Nay (“Ronald”) and Sherry Nay’s (“Sherry”) assets, including, without limitation, farm equipment, by filing a financing statement with the Indiana Secretary of State. Subsequently, LEAF Capital Funding, LLC (“LEAF”) obtained purchase-money security interests in two pieces of Ronald and Sherry’s farm equipment (“PMSI Equipment”) which LEAF perfected by filing financing statements with the Indiana Secretary of State.

Sometime thereafter, Ronald and Sherry filed for Chapter 11 bankruptcy, and a priority dispute between MainSource and LEAF ensued. MainSource argued it had first-priority over all farm equipment, including, without limitation, the PMSI Equipment, because LEAF failed to correctly identify the debtor’s name on its financing statements. LEAF had incorrectly listed the debtor as “Ronald Mark Nay” instead of “Ronald Markt Nay”.

Under IC § 26-1-9.1-506, a financing statement is effective even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading. Further, a financing statement that fails to sufficiently provide the name of the debtor in accordance with IC § 26-1-9.1-503(a) is seriously misleading. IC § 26-1-9.1-503(a)(4) specifically states that if the debtor is an individual with an unexpired driver’s license, a financing statement sufficiently provides the name of the debtor only if the financing statement provides the name of the individual which is indicated on the driver’s license. (Emphasis added).

The court found that LEAF’s failure to use the exact name shown on Ronald’s driver’s license in the financing statements (though likely inadvertent) was seriously misleading because it failed to comply with the Indiana statute which specifically requires the use of the name on an individual’s driver’s license.

This case demonstrates the importance of correctly identifying the debtor in a financing statement, as even the smallest of errors can leave a lender unperfected. For more information regarding financing statements or other lending matters, please contact Timothy Hurlbut at thurlbut@dblaw.com.