|Bankrupts May Not Transfer Funds among Debtors 90 Days before Filing|
Appeals court held that it was a preferential transfer for parties who filed bankruptcy to make transfers from one credit card to another within 90 days of filing. The debt transfer is an abuse of the bankruptcy process that the trustee has the right to reverse.
Abuse; Preferential Transfers
|C A S E S U M M A R Y|
The Marshalls filed for Chapter 7 bankruptcy. Less than 90 days before they filed, they directed one credit card company to pay off another credit card company $17,000 through a balance transfer from one card to another. They had another credit card company pay off a $21,000 balance owed by a similar balance transfer to another card. The trustee filed an adversary complaint against the card company that received payments, contending that since they were made within 90 days of the bankruptcy filings they were preferential transfers that could adversely impact other creditors, which is abuse of the process. The bankruptcy court disagreed and upheld the funds transfer. The trustee appealed but the district court affirmed. The trustee appealed again.
Reversed and remanded. The trustee had the right to “avoid” the payoffs ordered by the Marshalls during the 90 days before filing. The ability to control debt on their cards made that an “interest of the debtor in property” subject to the rules regarding preferential treatment of creditors. The credit lines in the credit cards were in the control of the debtors. The funds involved in the estate would have been different had the transfers not been made, so the transfers will be reversed so as not to upset the rights and preferences of the creditors.
In re Marshall, 550 F.3d 1251 (10th Cir., 2008)
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