IN RE: JOHNNY RAINES CASE NO. 89-01606

IN RE: JOHNNY RAINES CASE NO. 89-01606

DEBTOR

This case is pending on the motion of Marine Midland Automotive Financial Corporation for relief of the automatic stay for the limited purpose of allowing Marine Midland to sell a l988 Ford Ranger pickup truck.

The controversy involves the perfection of a lien on the truck. On October 25, l988 the debtor purchased the truck and executed a security agreement conveying to Marine Midland Automotive Financial Corporation a security interest in the vehicle to secure payment of an indebtedness in the amount of $l4, 563.80. A financing statement giving notice of the above transaction and showing Marine Midland as the secured party is on file in the Woodford County Court Clerk's office as file #3825. Although Marine Midland was noted as the "secured party" on the receipt, for payment of the fees for filing the UCC-l form,

the date of filing has not been made clear to the court. For unexplained reasons, Marine Midland's lien was not noted on the Certificate of Title subsequently issued on December 4, l988 for the l988 Ford Ranger pickup truck. The debtor filed a petition for relief under chapter 7 of the Bankruptcy Code in this court on August 28, l989.

Marine Midland argues that pursuant to KRS l86A.0l0 et. seq. a security interest in a motor vehicle is perfected when the secured party submits the proper documents to the appropriate county court clerk and pays the fees for recording the lien notice. Marine Midland argues that since it submitted to the clerk a UCC-l financng statement, appropriate fees, and all necessary information required to perfect its security interest, the security interest is perfected. The trustee argues that Marine Midland does not have a perfected security interest in the l988 Ford truck and therefore the creditor's motion for relief from the automatic stay should be denied.

KRS l86A.l90 provides as follows:

In Kentucky Finance Co. v. Spradlin Ky. App., 7l7 S. W. 2d 843 (l986), the court discussed the purpose of a financing statement after a certificate of title is issued:

Id. at page 845.

When a statute requires perfection of a security interest by indication on a certificate of title, a security interest can be perfected only by that method. KRS 355.9-302(3)(4). That section and KRS l86A.l90(l)(2) mandate that the certificate of title governs the resolution of perfection and priority disputes. In Re Farmer Adversary No. 89-0005 (Bank. E. D. Ky. l989) Bare, J.

Marine Midland's lien is not noted on the certificate of title. Therefore, the bank held an unperfected security interest in the vehicle in question as of commencement of this bankruptcy case.

A trustee in bankruptcy has the rights of a creditor with a judicial lien on the property of the debtor as of commencement of a bankruptcy case. Matter of Quality Holstein Leasing 752 F. 2d l009 (5th Cir. l985). The trustee's rights as a judgment lien creditor became effective on August 28, l989. An unperfected security interest is subordinate to the rights of a lien creditor. KRS 355.9-30l(l)(b). A lien creditor includes a trustee in bankruptcy. KRS 355.9-30l(3). Under Kentucky law, the rights of the trustee in bankruptcy are superior to the unperfected

security interest of Marine Midland. Accordingly the motion for relief from the automatic stay is denied.

Dated:________________________

By the Court

__________________________

Judge

Copies to:

William D. Bach

Lucinda Masterson Hall