This doctrine originally arose under the Bankruptcy Act in codebtor cases—the new creditor, who was obligated on an existing debt as a guarantor or surety, provided Debtor with funds to pay the old creditor.In re Moses, 256 B.R. 641, 645 (10th Cir. BAP 2000) (collecting cases). In such cases, courts reasoned that the codebtor's payment to the old creditor did not constitute a transfer of debtor's property, and there was no diminution of the debtor's estate inasmuch as the amount available for unsecured creditors remained the same as before the transfer regardless of the debtor's control of the transferred funds. Courts also noted that earmarking was equitable because if the transfer were avoided, the codebtor would be subject to double liability.
Section 547(b) states: See, e.g., Manchester v. First Bank Trust Co. (In re Moses), 256 B.R. 641, 644 (10th Cir. BAP 2000) (citing cases); Harris v. Beneficial Oklahoma, Inc. (In re Harris), 209 B.R. 990, 993 (10th Cir. BAP 1997) (citing cases). Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property —
For the reasons detailed below, we find that neither the reinsurance agreements nor any theory Anchor Wate advances establishes such an interest; therefore, the district court correctly determined that the reinsurance proceeds were part of SAIC's estate. In re Edgeworth, 993 F.2d 51, 55 (5th Cir. 1993); accord In re Moses, 256 B.R. 641, 645 (10th Cir. 2000). ¶ 15 As a general matter, an insured has no legal interest in reinsurance proceeds.
For the reasons detailed below, we find that neither the reinsurance agreements nor any theory Anchor Wate advances establishes such an interest; therefore, the district court correctly determined that the reinsurance proceeds were part of SAIC's estate. In re Edgeworth, 993 F.2d 51, 55 (5th Cir. 1993);accord In re Moses, 256 B.R. 641, 645 (10th Cir. 2000). ¶ 15 As a general matter, an insured has no legal interest in reinsurance proceeds.
As such, "the fundamental inquiry under 547(b) will be whether the debtor had a legal or equitable interest in the property such that the transfer at issue diminished or depleted the debtor's estate."Manchester v. First Bank and Trust Co. (In re Moses), 256 B.R. 641, 645 (10th Cir. BAP 2000) ( citing Begier v. IRS, 496 U.S. 53, 58-59, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990)).Begier, 496 U.S. at 58-59.
[T]he fundamental inquiry under § 547(b) will be whether the Debtor had a legal or equitable interest in the property [transferred] such that the transfer at issue diminished or depleted the Debtor's estate." Manchester v. First Bank Trust (In re Moses), 256 B.R. 641, 645 (10th Cir. BAP 2000) ( quoting Bailey v. Hazen (In re Ogden), 243 B.R. 104, 113 (10th Cir. BAP 2000). In preference litigation, the form of the transaction must satisfy the statutory elements, and the "debtor's intent or motive is not material."
In other words, “an interest of the debtor in property” as used in § 547(b) “is best understood as that property that would have been part of the estate had it not been transferred before the commencement of bankruptcy proceedings.” “ ‘Generally, a transfer of money or property owned by a third person to a creditor of a debtor is not a preference.’ ” Manchester v. First Bank & Trust Co. (In re Moses), 256 B.R. 641, 645 (10th Cir. BAP 2000) (citations omitted).Begier v. IRS, 496 U.S. 53, 59 n. 3, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990)
Earmarking is a judicially created exception to the general rule that certain transfers are recoverable as preferences by the trustee in bankruptcy. There is a debate amongst the courts whether the earmarking doctrine is an element of "property of the debtor" or it is an entirely separate doctrine, whose applicability is separate and distinct from the criteria of section 547. Compare McCuskey v. Nat'l Bank of Waterloo (In re Bohlen Enter., Ltd.), 859 F.2d 561 (8th Cir.1988) (earmarking addresses the issue of whether transfer of an interest of a debtor in property has occurred), and Montgomery, 983 F.2d 1389 (6th Cir.1993) (earmarking is an exception to the property of the estate analysis), with Manchester v. First Bank & Trust Co. (In re Moses), 256 B.R. 641, 648 (10th Cir. BAP 2000) ("[E]armarking does not assist in defining the elements of a preference under § 547(b). It is merely a judicially created exception to the requirements of § 547(b).").
Earmarking is a judicially created exception to the general rule that certain transfers are recoverable as preferences by the trustee in bankruptcy. There is a debate amongst the courts whether the earmarking doctrine is an element of "property of the debtor" or it is an entirely separate doctrine, whose applicability is separate and distinct from the criteria of section 547. Compare McCuskey v. Nat'l Bank of Waterloo (In re Bohlen Enter., Ltd.), 859 F.2d 561 (8th Cir. 1988) (earmarking addresses the issue of whether transfer of an interest of a debtor in property has occurred), and Montgomery v. Southland Escrow Serv., 983 F.2d 1389 (6th Cir. 1993) (earmarking is an exception to the property of the estate analysis), with Manchester v. First Bank Trust Co. (In re Moses), 256 B.R. 641, 648 (B.A.P. 10th Cir. 2000) ("[E]armarking does not assist in defining the elements of a preference under § 547(b). It is merely a judicially created exception to the requirements of § 547(b).").
Id., citing Butner v. U.S., 440 U.S. 48, 55 (1979).Manchester v. First Bank Trust Co. (In re Moses), 256 B.R. 641, 645 (10th Cir. BAP 2000), quoting Bailey v. Hazen (In re Ogden), 243 B.R. 104, 113 (10th Cir. BAP 2000). 5 Collier on Bankruptcy ¶ 547.