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Money Held in a Bank Account in the Name of a Debtor is Presumed to be a Property of the Bankruptcy Estate

December 21, 2017, VirginiaDebtor Twin Contracting Corporation was a construction firm. Defendant Reston Hospital Center engaged the Debtor as a contractor for a certain project. During their business relationship, the Defendant paid the Debtor the sum of $168,027.30. Subsequently, the Defendant made a duplicate payment of $15,694.78 to the Debtor, which amount was already included in the previous payment. The Defendant demanded a refund. Recognizing its obligation to the Defendant, the Debtor issued a refund check to the Defendant. The Defendant cashed it. Within 90 days, the Debtor filed for bankruptcy, and the Trustee brought a lawsuit to avoid and recover the alleged payment as a preference.

The Court ruled that the Debtor was entitled to avoid a transfer of funds pursuant to Section 547 (b). The Trustee had met her burden on all of the elements of her prima facie case under Section 547 and the Defendant had not met its burden to come forward with any evidence in support of its affirmative defenses. Further, there was no unequivocal expression of intent to create an express trust, nor were there the indicia of the creation of an express trust. The Court highlighted that the funds in the Debtor’s bank account are presumed to be the Debtor’s property – subject to the Defendant’s claim that the funds were held in trust for its benefit. In the case at bar, the Court found that there was no constructive or a resulting trust created because the Defendant failed to produce any tracing evidence to demonstrate that the funds that were paid to it subsequently were the same funds as it entrusted to the Debtor earlier.

Meiburger v. Reston Hosp. Ctr., Nos. 16-10565-BFK, 17-01070-BFK, 2017 Bankr. LEXIS 4369 (Bankr. E.D. Va. Dec. 21, 2017)