## Facts

- Jason and Alice Curtis operated a farming business known as J & A Farms, which leased land in Desha County and Lincoln County, Arkansas to grow crops.
- J & A Farms borrowed money from two secured lenders, Merchants & Farmers Bank of Dumas and Union Bank & Trust Company (collectively, the banks).
- To secure repayment, J & A Farms granted the banks security interests in farm equipment and crops; Union Bank’s collateral package also included rights such as government farm-program payments.
- The loan documents and security agreements used a Desha County address for J & A Farms, and the Curtises resided in Desha County.
- The banks filed UCC financing statements to perfect their security interests, including filings in Desha County; Union Bank also filed with the Arkansas Secretary of State for collateral that required central filing.
- The Curtises filed bankruptcy under Chapter 12, and the case was later converted to Chapter 7. A Chapter 7 trustee was appointed.
- The banks moved for relief from the automatic stay to pursue foreclosure and other state-law remedies against the collateral.
- The trustee objected and sought to avoid the banks’ liens, arguing the banks failed to prove their financing statements were filed in the correct location to perfect liens on farm equipment and crops and disputing whether the collateral was owned by J & A Farms or by the individual debtors.
- By the time of the stay-relief litigation, the secured debt owed to the banks exceeded the value of the collateral, leaving no equity for the estate.

## Issues

1. Whether the banks proved they held valid, perfected security interests in the farm equipment and crops under Arkansas UCC filing rules, including whether Desha County was the proper place to file based on the debtor’s “chief executive office.”
2. Whether the collateral was owned by J & A Farms (as the debtor on the loan and security documents) or by the individual debtors, affecting the debtor identity and filing location used for perfection.
3. Whether Union Bank properly perfected its security interest in government farm-program payments through filing with the Arkansas Secretary of State.
4. If the liens were perfected and the estate had no equity in the collateral, whether the banks were entitled to relief from the automatic stay to enforce their security interests.

## Decision

- The court found the evidence showed the farming operation, J & A Farms, owned the collateral at the time the security interests were granted, rather than the equipment and crops being owned solely by the individuals.
- The court determined Desha County was the location of J & A Farms’ chief executive office, as reflected by the business address used in the parties’ documents and the Curtises’ residence.
- Because Desha County was the proper filing location for the farm equipment and crops at issue, the banks’ county-filed financing statements were sufficient to perfect their security interests in that collateral.
- The court also found Union Bank properly perfected its security interest in collateral requiring central filing (including government payments) by filing with the Arkansas Secretary of State.
- Given that the secured claims exceeded the value of the collateral and there was no equity for the estate, the court granted both banks’ motions for relief from the automatic stay, permitting them to proceed with foreclosure and other remedies.

## Legal Principles

- A creditor seeking stay relief based on a lien must show a valid security interest that has attached and is enforceable against the debtor, and (when challenged) that the interest is perfected under applicable state UCC law.
- For UCC perfection, the correct place to file depends on the type of collateral and the debtor’s location; for a business entity, the debtor’s location may be determined by the place of its chief executive office as shown by objective evidence (such as addresses used in the transaction documents and business operations).
- When collateral includes rights that require central filing (such as certain payment intangibles), filing with the state-level filing office is required for perfection, even if other collateral is perfected by local filing.
- Under Bankruptcy Code § 544, a Chapter 7 trustee may avoid an unperfected security interest as a hypothetical lien creditor; therefore, perfection disputes are often determinative in stay-relief litigation.
- Relief from the automatic stay may be granted when the estate has no equity in the collateral and the property is not needed for reorganization; in Chapter 7, the lack of equity commonly supports stay relief when the trustee has no value to administer for unsecured creditors.

## Conclusion

In *In re Curtis*, the bankruptcy court rejected the trustee’s challenge to the banks’ UCC filings, finding that J & A Farms owned the farm collateral, that Desha County was the proper filing location for perfecting liens on the farm equipment and crops, and that Union Bank also perfected interests requiring state-level filing; because the secured debt exceeded the collateral value, the court granted both banks relief from the automatic stay to pursue foreclosure.


In re Curtis, 363 B.R. 572 (2007)