Owners who are behind on a merchant cash advance or a bank loan sometimes ask us whether moving the business to another state will shake off the lender’s UCC filing. Transferring the business to another state does not remove the lender’s UCC lien. The lender remains perfected for four months following the transfer. Within that four-month period, the lender has the ability to file a financing statement in the state where the business has relocated. So the answer to our question “Does the UCC filing follow me?” is - yes. It will, at least for four months.
The Uniform Commercial Code
The Uniform Commercial Code (UCC) is a state-by-state set of rules, adopted by every state. Article 9 is the part of the UCC that covers “secured transactions” - that is, loans or advances of money backed by collateral. A big overhaul of Article 9 happened in 1998. It took effect on July 1, 2001, and it was adopted in all 50 states. The American Law Institute and the Uniform Law Commission formed a review committee. In 2010, the committee issued recommendations on more tweaks to Article 9, which became effective in July of 2013. These changes weren’t to rewrite Article 9, but rather to clarify concerns that had emerged over time, especially regarding filing financing statements.
The UCC Filing Will Follow You
The part that matters if you are thinking about moving is section 9-316. Under the old rule, if the debtor moved states, any lien that attached before the move stayed perfected for four months. Now, if the lender perfected its lien in the first state, it also perfects its lien in any new property that the debtor acquires during the four-month period after the move. The amended rule also covers mergers: the secured party is automatically perfected in property that attaches within four months after a new debtor becomes bound by an existing security agreement, for example through a merger with a company in another state. The bright side for the lender: the UCC filing will follow you. Well, for four months.
A move can also trip over the debtor’s name, particularly if you reorganize or rename the company along the way. Before the law changed, lenders had to file paperwork every time the borrower changed its name. Now, they only have to file paperwork if the filing they already have becomes seriously misleading; and their filing is only good for four months after that - unless they file paperwork in the meantime. If the business is registered, a secured lender will have to use the company’s official legal name, which will usually be the name on its charter filed with the state (not the state’s business entity database, which may use abbreviations or contain mistakes).
Either way, the secured party has four months from the date the debtor moves to establish a UCC filing in the state where the debtor has relocated. What the lender should do is file in your new state as soon as possible. But the lender gets four months in which to do that. A prudent lender will also search for any filed liens in the original state you left. But when a cautious lender takes action, a sensible debtor will too.
Seek Professional Advice
You may be delinquent on a business loan or an MCA. But you are not the first, and you won’t be the last. Still, for an owner who is struggling with debt, the takeaway is simple. Moving to another state does not give the business a free pass to escape secured debt. A four-month window opens to let the lender file in your new state. If the real problem is that the payments no longer fit your cash flow, a move will not fix it.
That is why, at Delancey Street, we tell owners who are thinking about a move to discuss it with us, before they make any move. We are a business debt settlement company, not a law firm. We negotiate with lenders on your behalf to pay less than you owe. We don’t sell you another loan, and the initial meeting is free and confidential. We typically refer a case to a lawyer when we anticipate having to file a law suit or when we think the bankruptcy route might be better than settlement. If you are a business that faces a pressing debt problem and a move is part of your strategy, please call us. We will give you a candid assessment of your situation and let you know how we can help. In short, an owner with moves on the mind should seek professional advice.
