Summary:
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
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