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Security Interest Perfected Beyond 30-Days After the Debtor Received Possession Of Vehicle is a Preference

Reynard v. Bank of Am., N.A. (In re Resler), Nos. 15-00477-TLM, 15-06052-TLM, 2016 Bankr. LEXIS 2187 (U.S. Bankr. D. Idaho June 3, 2016)

Debtor Timothy Resler and Peterson Autoplex entered into certain agreements to trade a 2010 Lexus for a 2015 Lexus. The series of events were like this: On December 29, 2014, Resler took physical possession of the vehicle. On the same date, Resler also granted a security interest in the Lexus 2015 to Peterson. On January 30, 2015, Peterson further assigned the security interest in the Lexus 2015 to the Defendant Bank of America. On February 2, 2015, the Defendant bank paid Peterson $89,524.94 as a purchase price of the contract. On April 16, 2015, the Debtor filed petition for relief

The security interest granted in the Lexus was perfected more than 30 days after Resler took possession of the Lexus. The actual application regarding the Lexus was date stamped February 5, 2015, and the title report issued by the Idaho Transportation Department showed February 9 as recorded date for the lien.

The Trustee brought an adversary proceeding alleging that the transfer of the security interest to the Defendant bank satisfied all the condition of Sec. 547(b) and hence was avoidable as preferential. The Trustee alleged that the transfer through the granting of a security interest in Lexus was not perfected within 30-day time frame and thus, it was a transfer of an interest of the Debtor in property and hence avoidable as preference. The Defendant alleged that the Trustee failed to prove when the transfer of the security interest took place. According to the Defendant bank, the transfer of security interest took place on January 30, 2015, which fit right within the 30-day time frame referenced in §547(e)(2)(A). The Defendant also argued that the transfer of the Lexus was not made on account of an antecedent debt because the contract between Peterson and the Debtor was conditioned upon the financing condition, which did not take place until January 30, 2015, when the transfer occurred and the debt was paid immediately thereon.

Rejecting both the arguments of the Defendant, the Court stated that it need not determine which of the dates was the actual date of perfection, as all of them—January 30, February 5, February 9 fell beyond 30 days from December 29, 2014 i.e. when agreement was executed. Thus, under § 547(e)(2)(A), the transfer through the granting of the security interest in the Lexus was deemed to have occurred for preference purposes on the date of perfection. As all these dates fell with the 90-day preference period, and the rest of the elements of Sec. 547(b) were already satisfied, the transfer was avoidable as preference.

The Court next stated that the Debtor became legally bound to pay the purchase price for the Lexus upon the execution of its contract with Peterson on December 29, 2014. The fact that Peterson assigned its rights to the Defendant bank through a new agreement did not create a new debt. Upon the assignment, on January 30, the Defendant bank simply gained all the rights to collect and enforce the debt which the Debtor previously owed to Peterson. Thus, the alleged transfer was not made pursuant to any new debt, rather was made on account of the pre-existing debt i.e. antecedent debt.

Thus, the Court concluded that the granting of a security interest is a transfer under 11 U.S.C.S. § 101(54) and in the present case, the security interest was perfected at least 32 days after the Debtor received possession of Lexus. Further, the new value defense at 11 U.S.C.S. §547(c)(3)(B) was unavailable. The Trustee established all the elements of 11 U.S.C.S. §547(b) and therefore the alleged transfer was avoidable as preference absent an applicable defense.