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Defendant’s Lien on a Vehicle was Avoidable as a Preferential Transfer

In re Vazquez, Nos. 12-09895 (ESL), 14-00298 (ESL), 2016 Bankr. LEXIS 1136 (U.S. Bankr. D.P.R. Apr. 6, 2016)

The Chapter 7 Trustee for the Debtors Luis A. Vazquez, Madeline E. Otero Feliciano, brought a lawsuit against the Defendant Cooperativade Ahorro de Credito de Arecibo (COOPACA) to avoid COOPACA’s lien on an automobile purchased by Luis A. Vazquez. The facts were: On August, 18, 2012, Luis and COOPACA executed an installment contract for the purchase of a 2013 motor vehicle. On November 29, 2012, COOPACA filed the documents required to perfect the lien over the motor vehicle. On December 17, 2012, the Debtors filed for bankruptcy relief. On February 22, 2013, lien on vehicle was registered.

The Trustee argued that since, the lien was perfected nineteen days before the bankruptcy petition date; it was voidable as a preferential transfer pursuant to Sec. 547. COOPACA contended that the recording of a security interest over a vehicle was not a transfer and that Luis was solvent when the installment contract was signed and when the lien was recorded. In addition, COOPACA contended that its actions to perfect the lien complied with the applicable Puerto Rico law and regulations making the transaction valid and non-voidable under Sec. 546.

The Court found that the Trustee has met all five elements required under Sec. 547 (b) to avoid the alleged transfers as preference: As to the first element, COOPACA admitted that it was a creditor, but argued that the recording of a lien over a motor-vehicle was not a transfer. The Court stated that the term transfer is defined in Section 101(54) as and includes creation of lien within the definition of transfer. The term transfer encompasses an exchange of anything of value, thus, both the payment of money and the creation of a lien were transfers. COOPACA did not dispute the second element: existence of an antecedent debt and the evidence submitted showed that the debt was incurred on August 18, 2012, before the alleged preferential transfer was made. With regard to the third element of insolvency, the Court found that in the absence of evidence to meet or rebut the presumption, the trustee was entitled to rely upon the presumption of insolvency in his favor. The Defendant did not contest the fourth element as the alleged transfer was made on November 29, 2012, nineteen days before the bankruptcy petition, thus within the 90-day preference period. With respect to the fifth element, the Court found that it was met because without the transfer COOPACA would be treated as an unsecured creditor who would have to share distribution with the Debtors other unsecured creditors.

The Court also ruled that despite the fact that COOPACA’s security interest was perfected under state law, the trustee could still avoid the transfer of the security interest because COOPACA failed to meet the 30 day perfection requirement under Section 547(c)(3).Accordingly, the Court concluded that all the elements of Section 547(b) were met and that COOPACA’s lien may be avoided as a preferential transfer.