Opinion
Case No. 98-31827-T, Adversary No. 00-3002
September 25, 2002
MEMORANDUM OPINION
Trial was held September 6, 2002, on complaint by plaintiff-debtor Joseph Brian Allred and Trustee Robert Hyman to set aside a preferential transfer pursuant to 11 U.S.C. § 547(b)(3) (b)(5)(A). The dispute arises out of the defendant's docketing of a judgment in the Circuit Court of Henrico County, within the ninety-day preference period prior to the debtor's filing of his chapter 13 bankruptcy petition. There are three issues for the court to determine. First, whether the presumption of insolvency is overcome by defendant's evidence; second, whether the defendant is obtaining less from this transfer than he would have obtained if this case had been filed as a chapter 7; and third, whether the analysis in Wellman v. Wellman, 933 F.2d 215 (4th Cir. 1991), requiring the court to weigh whether avoidance would benefit the estate, applies to the facts of this case.
The court finds that the defendant's evidence is not sufficient to overcome the presumption of insolvency during the preference period of § 547(f), that the defendant is obtaining more from the estate due to the transfer than he would under chapter 7, and that the Wellman analysis is inapplicable. Accordingly, the judgment against the debtor shall be considered a preference, and the defendant's interest shall be treated as unsecured.
FINDINGS OF FACT.
On December 15, 1997 defendant obtained a judgment against the debtor in the Circuit Court of Henrico County in the amount of $95,962.50. The judgment was docketed and became a lien on a parcel of property owned by the debtor on December 17, 1997. On March 12, 1998 debtor filed a voluntary chapter 13 petition. Accordingly, the judgment was docketed on the eighty-seventh day prior to the debtor's filing.
The docketing of the judgment created a secured interest for the benefit of defendant, on account of an antecedent debt between the defendant and the debtor, occurring within ninety days prior to the filing of the debtor's petition.
DISCUSSION AND CONCLUSIONS OF LAW.
Section 547(b) of the Bankruptcy Code permits a trustee to set aside certain pre-petition transfers of a debtor, generally referred to as preferences. See Lubman v. C.A. Guard Masonry Contractor, Inc. (In re Gem Constr. Corp.), 262 B.R. 638, 644 (Bankr.E.D.Va. 2000). Thus, all unsecured creditors may share in property brought back to the estate. Id. Further, 11 U.S.C. § 101(54) defines the term `transfer' broadly enough to include the docketing of a judgment as a transfer that § 547(b) may prohibit. See Babiker v. Citizens Contracting Co. (In re Babiker), 180 B.R. 458, 460 (Bankr.E.D.Va. 1995).
Except as provided in subsection (c) of this section, the 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.
11 U.S.C. § 547(b).
"`[T]ransfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtors equity of redemption." 11 U.S.C. § 101(54).
Defendant first argues that the defendant did not meet the § 547(f) definition of insolvency at the time the transfer was made relying on evidence of scheduling omissions and errors. Defendant further argues that § 547(b) is inapplicable because he is not obtaining more from the estate than he would have if the debtor had filed under chapter 7. Defendant argues in the alternative that the Wellman fraudulent transfer analysis should be applied, as the avoidance of this transfer would create no benefit to the estate, and the court should abstain from setting aside the transaction.
Plaintiff argues that the secured judgment in favor of the defendant against the parcel of property in Henrico County, which was obtained during the preference period, should be disallowed as a secured claim.
Though the defendant argues that the presumption of insolvency under § 547(f) is inapplicable to the debtor due to some scheduling errors, the court finds these are not enough to overcome the presumption. The court finds that the debtor was insolvent during the ninety days prior to filing for bankruptcy based on the presumption.
The court also disagrees with defendant's § 547(b)(5)(A) analysis, finding instead that the docketing of the judgment against the debtor within the preference period enables the defendant to receive more from the estate than if the case had been filed under chapter 7. If the court does not avoid this transfer as a preference, the defendant will by virtue of a judgment lien against debtor's realty plainly take more from the estate than if this case had been filed as a chapter 7.
Further, under the defendant's argument that the Wellman analysis of whether avoidance would benefit the estate should be applied, the court finds that returning this property to the estate would clearly create a benefit. However, the court rejects this analysis as it relies on a separate statute inapplicable in this case.
For these reasons, the court adopts the plaintiff's argument that the claim held by the defendant should be disallowed as secured. The defendant's proof of claim shall be denied as secured and allowed as unsecured.
Accordingly, the court finds that the defendant's docketing of a judgment against the debtor's property holdings meets the requirements of § 547(b) as a preferential transfer that the trustee may avoid. Accordingly, the judgment against the debtor shall be considered a preference, and the defendant's interest shall be treated as unsecured.