10-14488-7 In re Halling

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Bankruptcy
Preferential transfers

Where the debtor’s son was a guarantor of a loan, all payments made by the debtor to the creditor are preferential transfers, and the amount of the payments can be recovered from the son.

“The Court recognizes that Mr. Halling was attempting to do the ‘right’ thing by helping his mother. But her payments to the bank had the effect of benefitting him at a time when other creditors were going unpaid. Because of his family relationship, the bankruptcy code expects that the ‘benefit’ he received should be shared with other unsecured creditors. As a result, the Court must find that the transfers may be avoided and that the trustee may recover those amounts from Mr. Halling as the beneficiary of those transfers.”

“Admittedly, the application of the preference rules can lead to unfortunate results in particular cases, and this appears to be one such case. It might seem that the rules should be limited to corporate cases or cases where the transfers seem to suggest some sort of bad faith by the parties. But the code applies to all cases and requires the recovery of preferential transfers even where the defendant did nothing except receive a benefit Congress directed should be spread among all unsecured creditors.”

10-14488-7 In re Halling

W.D.Wis., Utschig, J.