• Sarah Little

9th Circuit Decides Money Deposited within 90 days can be an Avoidable Preference Where it creates a

Trustee wins preference action against creditor bank where Chapter 7 Debtor paid $190,595.50 to creditor bank on account of debt within 90 days of bankruptcy filing and also deposited $526,402.04 with same bank at the same time as payment. The bank tried to defend against the Trustee's adversary to recover the $190,595.50 payment by alleging it did not receive more than it would in a hypothetical liquidation scenario because if it had not been paid it would have had set-off rights against the deposit account. The Trustee alleged that the deposit was also subject to a preference recovery, and therefore the bank did receive more than it would in a hypothetical liquidation scenario.

The Court held that the deposit was a "transfer" within the meaning of section 547. In a hypothetical liquidation scenario where the $190,595.50 payment had not been made, the bank's acquisition of a set-off right resulting from the deposit, whether or not the bank in fact set off the account, amounted to a transfer withing the meaning of 547. The deposit itself was a transfer when it effectively depleted the estate's assets by creating a set-off in favor of the bank. In re Tenderloin Health Click here for case.

#preference #Chapter7 #Trustee

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