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Bankruptcy

7th Circuit Court of Appeals

Case Name: Mark Warsco v. Creditmax Collection Agency, Inc.

Case No.: 22-1733

Officials: Easterbrook, St. Eve, and Kirsch, Circuit Judges.

Focus: Bankruptcy –

Bankruptcy trustees can recover some transfers made to outside parties during the 90 days before the debtor files a petition. 11 U.S.C. §547(b)(4)(A). Warsco, trustee in the bankruptcy of Isiah Harris, discovered that a little more than $3,700 had been paid to Creditmax during those 90 days on account of Harris’s antecedent debt—in other words, that Creditmax had not provided “new value” within the meaning of §547(a)(2). Creditmax holds a judgment against Harris and used it to secure a garnishment order, which required Harris’s employer to pay some of his wages directly to Creditmax. The garnishment order was issued by a state court in Indiana more than 90 days before Harris filed his bankruptcy petition. Warsco began an adversary proceeding to recover the $3,700 for distribution among all of Harris’s creditors, without a preference for Creditmax.

Creditmax relied on a previous case, In re Coppie, 728 F.2d 951 (7th Cir. 1984), which held that the definition of a “transfer” for the purpose of §547 depends on state law, and that as a matter of Indiana law a “transfer” occurs when a garnishment order is entered, not when money is paid. The court found that Coppie was wrongly decided, as it was overruled by a later Supreme Court case, Barnhill v. Johnson, 503 U.S. 393 (1992), which held that federal law, not state law, defines the meaning of “transfer” in §547. The court also found that Barnhill held that the date of transfer is the time at which the money passes to the creditor’s control, not the date of the order to pay money.

Decided 01/09/23

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