The Uniform Commercial Code(UCC), under which most States operate, dictates that the filing of a financing statement by a creditor is effective for only five years from the date the statement was filed.

Thereafter, the debt becomes unsecured. In the event the creditor desires to extend its security interest, the creditor must file a “continuation statement” within six months prior to expiration of the five year period from the original date of filing.

Here, the bank intended to extend its security interest past the five year period prescribed by the UCC. The creditor, however, filed its continuation statement prior to the six month period preceding the end of the five year period.

The debtor argued to the Court that the creditor’s premature filing of the continuation statement was ineffective and did not properly extend the creditor’s interest in the collateral.

The Court agreed with the debtor and held that the creditor must file its continuation statement within the six month period immediately preceding expiration of the five year period.

Here, the early filing effectively extinquished the security.  Rainbow Manufacturing Company v. Bank of Fitzgerald, (U.S. Bkrtcy. M.D. Ga., Nos. 91-50236 & 91-5054).

Author: Charles R. Harroun, Attorney at Law