Voiding Preferential Transfers in Chapter 7 Bankruptcy Cases

The federal bankruptcy code contains provisions which seek to prevent claims from creditors based on preferential transfers made while the debtor was already insolvent and had reason to believe they would be filing for bankruptcy protection. A recent decision from the United States Bankruptcy Court illustrates how a court can carefully determine if a transfer was preferential and therefore, subject to being avoided after the debtor files for bankruptcy.

In the Matter of In re Talermo,  Case No. 11-20806, Adv. No. 12-2010. (US Bank. Ct. Wyoming 2014), the debtor, prior to filing a Chapter 7 bankruptcy action, received two loans from a creditor named Steve Robinson. In May 2011, Robinson loaned the Debtor the amount of $2,000.00. At the time no terms of repayment were discussed. Then in July shortly before filing bankruptcy, Robinson lent him another $18,000 but shortly thereafter had liens against Talermo’s (the debtor’s) Jaguar vehicle, DMH trailer and Calabria boat filed in the jurisdiction’s courthouse as security for the loan in case Talermo failed to pay him back. The value of the property underlying the lien happened to be estimated at a total of $20,000. The liens were recorded on July 7, 2011 just eighteen days before Talermo filed the bankruptcy case.

The trustee who takes control of the debtor’s estate during the pendency of the bankruptcy, sought to have the liens avoided on the grounds they were not contemporaneous transactions; i.e., the debtor did not give anything of value to the creditor at the time of the transactions.  By getting the bankruptcy court to avoid the transfer, the estate would not have to consider these liens as legitimate liens which the estate would have satisfy before distributing money to unsecured creditors.    But The Bankruptcy Code states,

“The trustee may not avoid … a transfer–

(1) to the extent that such transfer was —

(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and

(B) in fact a substantially contemporaneous exchange …”

The question thus becomes “Was the filing of a lien for the creditor’s benefit a ‘contemporaneous exchange’?”  After reviewing the evidence, the bankruptcy court found that the first loan was not contemporaneous because no promise to give anything to the creditor was made at the time and no action to transfer anything of value was taken for a couple months after the initial $2000 loan. But as an agreement to give the creditor a lien secured by the debtor’s property was made and the lien was perfected just days after the second loan of $18,000 was tendered, that exchange was considered “contemporaneous” for purposes of the controlling bankruptcy statute. 

In Albuquerque, Giddens & Gatton Law, PC has attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.