## Facts

- Gary Stevens and his wife operated a row-crop farming business in Arkansas.
- On May 2, 2002, Union Planters Bank made an operating loan to finance the farming operation.
- The debtors granted Union Planters a security interest in farm equipment and “government payments,” including an after-acquired property clause; Union Planters filed financing statements.
- The Farm Security and Rural Investment Act of 2002 created farm program payments determined largely by base acres and historical yields, with sign-up from October 1, 2002, to June 2, 2003.
- In September–October 2002, the debtors executed Farm Service Agency enrollment/contract documents establishing eligibility for program payments; a bank representative also signed related documents.
- The debtors filed for bankruptcy in February 2003.
- The debtors began 2003 field operations in March 2003 and financed the 2003 crop through a different lender.
- Union Planters asserted a secured claim in the 2003 farm program payments; the debtors objected, arguing the bank’s lien did not attach because rights in 2003 payments arose only when the 2003 crop was planted postpetition.

## Issues

1. When, for Article 9 attachment purposes, did the debtors obtain “rights in the collateral” in 2003 farm program payments under the 2002 Farm Bill?
2. If the debtors’ rights in the payment stream arose prepetition through program enrollment, did Union Planters’ prepetition security interest attach and remain effective against payments issued postpetition?

## Decision

- The court held that Union Planters had a valid, attached, and perfected security interest in the debtors’ 2003 farm program payments.
- The court found the debtors’ rights in the payment stream were established prepetition through the statutory program and executed enrollment/contract documents, not by planting the 2003 crop.
- The court rejected the argument that postpetition planting transformed the 2003 payments into unencumbered postpetition property.
- The debtors’ objection to Union Planters’ secured status in the 2003 payments was denied.

## Legal Principles

- Under Article 9, a security interest attaches when value is given, the debtor has rights in the collateral, and an authenticated security agreement covers the collateral; “rights” can exist in intangible payment entitlements before cash is paid.
- Federal farm program payments may constitute an intangible statutory/contract payment right separate from the physical crop and its financing.
- An after-acquired property clause covering “government payments” can attach to farm program payment rights when the debtor’s entitlement becomes legally enforceable, including through program enrollment completed prepetition.
- A contingent or unmatured right existing as of the petition date can be property of the estate, but the estate takes that right subject to a perfected, prepetition security interest that attached when the right arose.
- Postpetition disbursement of payments does not, by itself, defeat a prepetition lien where the underlying right to payment was created prepetition.

## Conclusion

The court ruled that the debtors’ prepetition enrollment in the federal farm program created a prepetition right to 2003 payments, allowing Union Planters’ perfected, after-acquired security interest in “government payments” to attach and encumber the postpetition payment disbursements.


In re Stevens, 307 B.R. 124 (Bankr. E.D. Ark. 2004)