Preferential Transfer: “Time” of Transfer adopted.

— On September 11th, a garnishment was filed on debtor’s savings account;

— On September 17th, a garnishment order to pay was issued by the court;

— On September 19th, garnishee defendant received the order to pay;

— On September 27th, funds were paid to the court by the garnishee defendant;

— On October 24th, funds were disbursed to the creditor;

Debtor filed bankruptcy on December 24th — more than 90 days after the garnishment was served but within 90 days after the garnished monies of more than $100,000 were received by the creditor.

The United States Code, 11 U.S.C. 547(b), provides that a transfer of funds is voidable as a preference if it is made within 90 days before the filing of the bankruptcy petition.

Issue: Did the garnishment payment to creditor qualify as a “preferential transfer” under the Bankruptcy Code which could be set aside and the creditor compelled to return the garnished assets to the bankruptcy trustee for distribution to all creditors?

The court held that the time of transfer is determined at the time of service of the garnishment and not when the funds are actually received by creditor.

This court also noted that the transfer time of the asset should be determined by applicable State law. In this case, Ohio statues provide that a garnishee defendant is liable to the judgment creditor “from the time the garnishee is served” with the written garnishment.

In conclusion, since the garnishment was served on the garnishee defendant more than 90 days prior to the debtor filing bankruptcy, this transfer was not considered a “preferential transfer” and would not be set aside. Hence, the creditor was entitled to retain the more than $100,000 obtained from the garnishment on debtor’s savings account. In re Battery One-Stop LTD., 155 B.R. 727.

EDITOR’S COMMENT

Different Bankruptcy Courts across the country have applied the applicable laws for their own State. Please seek the advice of your own attorney as to whether the garnishment transfer is considered to be “preferential” in your State.

Author: Charles R. Harroun