Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Barash v. Public Finance Corp.

decided: August 28, 1981.

BARRY M. BARASH, CHAPTER 7 TRUSTEE FOR TIM R. DENNIS AND DAWN M. DENNIS, PLAINTIFF-APPELLANT, V. PUBLIC FINANCE CORPORATION, DEFENDANT-APPELLEE ; BARRY M. BARASH, CHAPTER 7 TRUSTEE FOR MARTHA S. MILLINGTON, PLAINTIFF-APPELLANT, V. FIRST GALESBURG NATIONAL BANK, GALESBURG MIDWEST EMPLOYEES CREDIT UNION, AND ASSOCIATES FINANCE, INC., DEFENDANTS-APPELLEES ; BARRY M. BARASH, CHAPTER 7 TRUSTEE FOR RICHARD DONALD NELSON AND ANNETTE KAY NELSON, PLAINTIFF-APPELLANT, V. FARMERS & MECHANICS BANK, DEFENDANT-APPELLEE ; BARRY M. BARASH, CHAPTER 7 TRUSTEE FOR RICHARD DONALD NELSON AND ANNETTE KAY NELSON, PLAINTIFF-APPELLANT, V. HOUSEHOLD FINANCE CORPORATION, DEFENDANT-APPELLEE ; BARRY M. BARASH, CHAPTER 7 TRUSTEE FOR NANCY L. CARTER, PLAINTIFF-APPELLANT, V. LEATH & COMPANY, DEFENDANT-APPELLEE ; BARRY M. BARASH, CHAPTER 7 TRUSTEE FOR MICHAEL THOMAS HARDING AND CONNIE MARIE HARDING, PLAINTIFF-APPELLANT, V. GATES CREDIT UNION, DEFENDANT-APPELLEE.


Consolidated Appeals from the United States District Court for the Central District of Illinois, Peoria Division. Nos. 80-1145, 80-1152, 80-1146, 80-1147, 80-1149 and 80-4057 -- Hon. Robert D. Morgan, Judge .

Before Swygert, Senior Circuit Judge, Fairchild, Circuit Judge, and Jameson, Senior District Judge.*fn*

Author: Jameson

This consolidated appeal involves eight bankruptcy cases in which Barry M. Barash, Chapter 7 Trustee for the debtors, sought recovery of alleged preferential transfers. In each case the bankruptcy court found in favor of the defendant creditor. The cases were consolidated on appeal to the district court, which affirmed the decision of the bankruptcy court in all cases.

The sole issue on appeal is whether installment payments voluntarily made by a debtor to an undersecured creditor in the ordinary course of the debtor's financial affairs within the 90 days preceding bankruptcy, but not more than 45 days after their due date, are preferences which may be avoided by the Trustee under Section 547 of the Bankruptcy Code. This is a case of first impression in this circuit; nor do we find that any other circuit court has passed on the question.

I. Factual Background

In each of the eight cases regular installment payments were made to a creditor within 90 days of an order for relief, 11 U.S.C. § 301. In each case the value of the creditor's collateral was less than the debt it secured. In all but one case, however, the value of the collateral exceeded the amount of payments made during the 90-day period preceding bankruptcy. All of the payments in question were voluntary, some made through automatic payroll deductions, others by direct payment from the debtor. The bankruptcy court found that none of the payments were made to cure defaults or eliminate arrearages. All of the accounts in question were considered current.*fn1

The orders of the bankruptcy court denying recovery to the Trustee were not accompanied by an opinion; but after notices of appeal were filed, the bankruptcy judge filed identical statements in each case:

Appellant's (trustee's) statement of the issues he intends to present on the appeal relates only to the grounds for a directed verdict made by appellee (creditor). The issue on appeal is the Judge's holding, as disclosed by the transcript, that voluntary payments made by a debtor on a secured debt do not constitute a preference.

The district court affirmed the decisions without an opinion.*fn2

In resolving the issue presented on this appeal, it is necessary to determine (1) whether the installment payments were preferences under the Bankruptcy Code; and (2) if so, whether the statutory exception removes the transactions from the operation of the preference rules.

II. Elements of a Preference

The Bankruptcy Code prescribes five requirements for a preference, all of which must be met for the Trustee to avoid a transfer.*fn3 A transfer is preferential if it is (1) to a creditor, (2) on account of a pre-existing debt, (3) made while the debtor is insolvent, (4) made on or within 90 days before the date of filing the petition, or made between 90 days and one year before the date of filing the petition if the creditor was an insider who had reasonable cause to believe the debtor was insolvent, and which (5) enables the creditor to receive more than he would receive if the estate were liquidated under Chapter 7. 11 U.S.C. § 547(b).*fn4

There is no dispute that the first four elements of a preference are established in each case. The installment payments were all made by a debtor to a creditor, on a pre-existing debt, within 90 days of the bankruptcy filing. The debtors are presumed insolvent during the 90-day period, 11 U.S.C. § 547(f), and no evidence was presented to rebut the presumption. Appellees argue, however, that they have not improved their position vis-a-vis other creditors, as required by § 547(b)(5). The Trustee, on the other hand, contends that the payments received within the 90-day period enabled the creditors to receive a greater proportion of their respective debts than they would if the estate were liquidated under Chapter 7.

As noted above, the debts in all of these cases are undersecured. 11 U.S.C. § 506(a)*fn5 separates undersecured creditors' claims into two parts: a secured component and an unsecured component. A creditor has a secured claim only to the extent of the value of his collateral. Any remaining balance is an unsecured claim. The effect of § 506(a) is to classify claims, not creditors, as secured and unsecured. In other words, a single undersecured creditor has both a secured claim and an unsecured claim, each of which is considered in its respective class. See S.Rep.No.95-989, 95th Cong., 2d. Sess. 68, (1978) reprinted in 5 U.S.Code Cong. & Admin.News (U.S.C.C.A.N.), 5787, 5854 (1978).

Except for two cases involving valuation of automobiles, it is agreed that the unsecured components of the debts exceed the amounts of the asserted preferences. The Trustee argues that the payments must be charged against the unsecured claims, and therefore the payments enabled the creditors to receive a greater proportion of their unsecured claims than other unsecured claimants.

Appellees, on the other hand, assert that in all but one case, where the debt is partially secured by a minimal balance in a credit union share account, because the value of the collateral exceeds the payments during the 90-day period, they did not receive more than they would have upon liquidation. The answer to these opposing contentions will depend on ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.