Bankr. M.D.N.C.: Schafer v. Hilliard (In re Royal Tours)- Avoidance of Payments if Not for A Debt


Lee and Patsy Hilliard were married in 1975 and both served as officers of Royal Tours. Following their separation in 2008, the couple entered into a Separation Agreement whereby Patsy Hilliard resigned her position with Royal Tours and accepted a cash payment from Royal Tours in lieu of an Equitable Distribution consisting of 108 monthly payments of $3,500.

The Chapter 7 Trustee alleged that the twelve payments made prior to the bankruptcy filing were preferences pursuant to 11 U.S.C. § 547. A trustee may avoid any transfer of an interest of the debtor in property:
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made –
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if –
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

The Bankruptcy Court held that the Trustee’s action failed as the funds paid were a not a debt of Royal Tours, but instead only of Lee Hilliard.

The Trustee’s avoidance of three payments made by Royal Tours to Patsy Hilliard after the filing of the bankruptcy was allowed pursuant to 11 U.S.C. § 549, as those payments were neither authorized by the Bankruptcy Code or by order of the court.

For a copy of the opinion, please see:

Schafer v. Hilliard (In re Royal Tours)- Avoidance of Payments if Not for A Debt.pdf


1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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