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Debtor Avoids Payment Made to Her Former Attorneys on Account of Legal Fees As Preference

Pantazelos v. Benjamin (In re Pantazelos), Nos. 15-bk-08916, 15-ap-00314, 2016 Bankr. LEXIS 4512 (U.S. Bankr. N.D. Ill. Dec. 27, 2016)

Debtor Faye T. Pantazelos filed a petition for bankruptcy relief under Chapter 13 of the Bankruptcy Code and later brought an adversary proceeding against her former attorneys to recover an allegedly preferential payment of $14,000. Defendants, Kevin J. Benjamin and the law firm of Benjamin Brand LLP (BBLLP), the Debtors prior attorneys provided legal services to the Debtor in connection with her two bankruptcy cases. The Debtor claimed that the alleged preferential payment was made during the 90-day period of filing her bankruptcy case on account of the legal fees. The Defendants argued that the alleged payment was not preferential as the Debtor was not insolvent at the time she made the alleged payment and the alleged payment did not enable them to receive more than otherwise they were entitled.

The Court found that the evidence showed that the Debtor’s financial condition had deteriorated between the filing of her Chapter 13 Case and the time when she made the $14,000 payment in December 2014. The Debtor’s schedules showed that she was insolvent when this case was filed and no evidence was presented showing that the Debtor’s assets were more valuable than she estimated them to be. Thus, the Court concluded that the Defendants failed to present sufficient evidence to rebut the presumption of insolvency in §547(f).

The Court further found that the Defendants received more than they would have been entitled under the Bankruptcy Code if the payment had not been made. The Court stated that even assuming that the entire Debtor’s personal property was sold before at the full scheduled value, the net proceeds to the Trustee would not exceed $43,000 and based on the total general unsecured claims, this would have resulted in a distribution of approximately 13.2% to general unsecured creditors. Thus, the Court held that the $14,000 payment of the fee claimed by Benjamin and BBLLP before the transfer was made paid the Defendants much more than they would have received in a Chapter 7 case if the transfer had not been made. Further, the Defendants could not establish a defense under §547(c)(1) and §547(c)(2). The Court held for the Debtor.