Part 4: Trustee’s Burden for Preference Transfers for or on Account of an Antecedent Debt
Robert S. Bernstein, Esquire
Bernstein-Burkley, P.C.
Creditworthy News
The second element the Trustee must prove in order to avoid a preference transfer is set forth in Section 547(b)(2) of the Code. This Code Section requires that the transfer made by the Debtor within 90 days of the bankruptcy be “for or on account of an antecedent debt owed by the Debtor before such transfer was made.” See Section 547(b)(2).
The term “antecedent debt” is not defined by the Code, but a common sense definition applies. A debt is antecedent if it is incurred before the transfer or payment from the Debtor. The most simple example is the Debtor orders goods and is invoiced on February 1. The Debtor later pays the invoice on July 30th, which is within 90 days of a bankruptcy filing.
As straightforward as it may appear, this element can become problematic when the debt and payment are nearly contemporaneous. Generally, a contemporaneous exchange of equal value will not be considered an antecedent debt. But take for example a secured financing creditor (such as an equipment financier) who intends a contemporaneous transaction. If, however, the financing creditor does not perfect immediately or within the statutory grace period, then the transfer may be deemed for or on account of an antecedent debt owed by the debtor before the transfer was made. Therefore, it is advisable for secured creditors to immediately perfect their security interests so that this potential problem is averted.
Next – Part 5: Preference Transfers Made While Debtor was Insolvent
[related]
In a bankruptcy Chapter 11 case a trust under AR1, was listed as a creditor party and the attorneys representing this trust also listed as such.
The trust that is supposed to be listed is AR11 not AR1. This trust AR11 is exempted from filing a motion for the relief of stay under 11usc 523 as it already got its alleged debt payment in a form of foreclosure few hours after the bankruptcy filing.
The trust AR1 submitted documents for relief from the automatic stay to continue and defend itself in a state complaint against them by the debtor (the state complaint is under AR11). All exhibits are under AR11 , their pleadings are under AR Trust or AR1. There is no proof of claim filed under neither trusts but yet they are considered in the bankruptcy case as creditors in the chapter 11 case.
The judge issued an order to AR11.
My questions are:
Can the debtor send a proof of claim to all the trusts mentioned to fill it in, in order to determine if they are creditors and entitled to the discharge from the debtor’s bankruptcy case?
The debtor’s amended schedule F states that the trust AR11 Is not a creditor under 11usc523 because it is foreclosed on the property, they are listed as Unsecured non-priority and noted to be non-creditors.
and
If the debtor, pre confirmation, as the Debtor In Possession, can claim that the debt is antecedent because it is incurred before the transfer or payment from the Debtor which is within 90 days of a bankruptcy filing “for or on account of an antecedent debt owed by the Debtor before such transfer was made” and can file a “preference transfer” under Section 547(b)(2) of the Bankruptcy Code?
Your response is greatly appreciated,