## Facts

- Attorney Jane McKnight represented the debtor in a mortgage-foreclosure action.
- The debtor later filed a Chapter 13 bankruptcy petition and proposed a Chapter 13 plan while owing McKnight $6,544.08 in unpaid attorney’s fees.
- McKnight filed a proof of claim asserting that $2,500 of her fee claim was secured by the debtor’s snowmobile.
- The debtor objected to McKnight’s asserted secured status.
- The bankruptcy court held an evidentiary hearing to decide whether McKnight held a valid security interest in the snowmobile.
- To support her secured-claim assertion, McKnight introduced several items:
  - A retainer letter that was ratified/signed, but that did not describe any collateral and did not show an intent by the debtor to grant McKnight a security interest.
  - Notes prepared by McKnight’s paralegal summarizing a phone call about the snowmobile; the notes included a description of the snowmobile but were not signed by the debtor and did not state that the debtor offered the snowmobile as collateral.
  - An affidavit prepared by the paralegal describing the phone call; it stated the debtor discussed placing the snowmobile in McKnight’s parking lot with a “for sale” sign, estimated it would sell for $3,500, and indicated McKnight could keep the sale proceeds. The affidavit did not state that the debtor granted, or agreed to grant, a security interest in the snowmobile.
  - A letter McKnight sent after the call thanking the debtor for his offer to sell the snowmobile; the letter did not state that the debtor was granting collateral or that McKnight accepted any collateral offer as a security interest.
- The debtor testified that he only meant for the snowmobile to be sold from McKnight’s parking lot to raise money to pay fees, not that he was pledging the snowmobile as collateral.

## Issues

1. Whether McKnight proved an enforceable Article 9 security interest in the debtor’s snowmobile so that $2,500 of her attorney-fee claim could be treated as secured in the debtor’s Chapter 13 case.

## Decision

- The court sustained the debtor’s objection to McKnight’s secured-claim status.
- The court found McKnight failed to establish a valid, enforceable security interest in the snowmobile.
- McKnight’s claim was allowed only as an unsecured claim (including the portion she asserted was secured).

## Legal Principles

- In bankruptcy, a creditor’s secured status depends on whether the creditor has a valid lien or security interest under applicable nonbankruptcy law.
- Under Article 9, a security interest generally is not enforceable against the debtor (and therefore does not attach) unless the statutory prerequisites are met, including an authenticated security agreement that describes the collateral (or another Article 9 substitute such as possession/control where permitted).
- A writing that does not describe collateral and does not show an intent to grant a security interest does not satisfy Article 9’s enforceability requirements.
- Notes or summaries created by a creditor’s staff, without the debtor’s authentication and without language showing a grant of collateral, do not establish an enforceable security agreement.
- Discussions about selling an asset and applying sale proceeds to an outstanding debt may show a plan for payment, but they do not by themselves create a lien in the asset.

## Conclusion

In re Yantz held that McKnight did not carry her burden to prove she held an Article 9 security interest in the debtor’s snowmobile: the retainer letter lacked any collateral description or grant language, the paralegal notes and affidavit did not show an authenticated security agreement, and the post-call letter merely referenced an offer to sell the snowmobile and apply proceeds to fees. As a result, the court rejected McKnight’s asserted secured status and treated her attorney-fee claim as unsecured in the Chapter 13 case.


In re Yantz, 2004 Bankr. LEXIS 2279, 55 U.C.C. Rep. Serv. 2d 19 (2004)