Whether a non-judicial foreclosure sale, carried out under State law in the 90 days to 1 year before bankruptcy, will be considered a “preferential transfer,” and therefore invalid, will depend upon many factors. The court must hear evidence regarding whether or not the foreclosing creditor received more in the pre-bankruptcy foreclosure sale than it would have received through the bankruptcy. The court cannot say, as a matter of law, that such creditors always receive more in a pre-bankruptcy non-judicial foreclosure than they would have received in the bankruptcy. Therefore, whether a particular sale is barred as a preferential transfer will be determined on a case-by-case basis.
In re: Buckskin Realty Inc., Case No. 1-13-40083-nhl, Adv. Pro. No.: 15-01004-nhl
United States Bankruptcy Court, E.D. New York filed March 26, 2021, interpreting 11 USC Sec. 547 and BFP v. Resolution Trust Corp., 511 U.S. 531 (1994).
BANKRUPTCY LAW (Preferential Transfer): The bankruptcy court abhors, and will seek to undo, what it considers a preferential transfer.
A debtor who paid off serial overdrafts to his bank within 90 days of filing bankruptcy made preferential transfers. The court reasoned that the bank already had the deposits, and was effectively receiving extra money, that it would have been barred from receiving HAD the bankruptcy already been filed. The trustee was entitled to receive reimbursement for the amount of the overdraft payments.
In re Agriprocessors, Inc., 859 F.3d 599, 8th Circuit 2017
BANKRUPTCY LAW (Preferential Transfer): A preferential transfer is a payment made within 90 days before the filing of bankruptcy, which is not made in the ordinary course of business. WHEN the trustee or Court finds that the debtor has made such a transfer, the transfer may be unwound, and the money ordered returned to the bankruptcy estate. The creditor who received the money will have to dig into its pockets and return the funds to the court.
In determining whether a payment is a preference, the court can conduct a hypothetical payment analysis to determine whether that payment would have been made had bankruptcy had not been filed. If the creditor received more via the questioned transaction than it would have received in the bankruptcy, then the payment is a preference (“preferential transfer”). In re Tenderloin Health 849 F 3rd 1231, 9th Circuit 2017