## Facts

- Daryl DeCora, a member of the Ho-Chunk Nation, received quarterly per capita distributions derived from tribal gaming revenues.
- Before filing Chapter 7, DeCora borrowed funds from Ho-Cak Federal and granted it a security interest in his right to receive future per capita distributions; the loan proceeds included funds used to purchase a vehicle.
- DeCora signed documents authorizing the tribe to redirect distributions to pay the debt in accordance with tribal practices/ordinances.
- Ho-Cak Federal sent the loan/authorization documents to the Ho-Chunk Nation but did not file a UCC financing statement with Wisconsin’s central filing office.
- After the bankruptcy petition date, the tribe diverted $9,984.16 from DeCora’s distributions to Ho-Cak Federal.
- The Chapter 7 trustee filed an adversary proceeding seeking to avoid the security interest under 11 U.S.C. § 544(a) and to recover the post-petition payments for the estate on stipulated facts.

## Issues

1. Whether the debtor’s right to receive tribal per capita distributions is property of the estate and a “general intangible” under Wisconsin law.
2. Whether Ho-Cak Federal perfected its security interest by complying with tribal ordinances and notifying the tribe, or whether Wisconsin UCC Article 9 required a filed financing statement.
3. Whether the trustee may avoid the bank’s security interest under 11 U.S.C. § 544(a) and recover the post-petition diverted payments.

## Decision

- The court held the debtor’s right to receive per capita distributions is an intangible property right and constitutes property of the estate under 11 U.S.C. § 541(a).
- The court classified the right as a “general intangible” under Wisconsin’s UCC.
- The court held perfection and priority were governed by Wisconsin UCC Article 9, not by compliance with tribal ordinances or notice to the tribe.
- Because Ho-Cak Federal did not file a financing statement, its security interest was unperfected as of the petition date.
- The trustee, as a hypothetical lien creditor under 11 U.S.C. § 544(a), could avoid the unperfected security interest.
- The trustee was entitled to recover/obtain turnover of the $9,984.16 in post-petition payments diverted to Ho-Cak Federal.

## Legal Principles

- “Property of the estate” under 11 U.S.C. § 541(a) includes a debtor’s legal or equitable interests in intangible rights existing as of the petition date, including a member’s right to receive tribal per capita distributions when and as payable.
- Under Wisconsin UCC Article 9, a security interest in a debtor’s right to receive such distributions is a security interest in a “general intangible.”
- A security interest in a general intangible is perfected by filing a financing statement in the proper state filing office; directing payments through a third party and giving notice to that payor does not substitute for UCC perfection.
- Under 11 U.S.C. § 544(a), a Chapter 7 trustee may avoid an unperfected security interest and recover post-petition transfers attributable to that avoidable interest.

## Conclusion

The court ruled that the debtor’s right to future tribal per capita distributions entered the bankruptcy estate as a general intangible and that the creditor’s failure to file a UCC financing statement left its lien unperfected, allowing the trustee to avoid the lien under § 544(a) and recover the post-petition diverted payments.


In re DeCora, 387 B.R. 230 (Bankr. W.D. Wis. 2008)