Schoenmann v. Bank of the West

by
The bankruptcy trustee sought to recover for the bankruptcy estate a $190,595.50 loan payment debtor Tenderloin made to BOTW within ninety days of the filing of Tenderloin's chapter 7 bankruptcy. The "greater amount test" in 11 U.S.C. 547(b)(5) requires that the trustee demonstrate that by virtue of that payment BOTW received more than it otherwise would have in a hypothetical chapter 7 liquidation where the challenged transfer had not been made. The district court granted summary judgment for BOTW and found that the trustee could not satisfy section 547(b)(5) because BOTW had a right of setoff, and Tenderloin's account contained at least $190,595.50 on the petition date. The trustee asserted that in the hypothetical liquidation, the trustee would avoid a $526,402.05 deposit, leaving less than $190,595.50 in Tenderloin's account, even allowing for BOTW's right of setoff. The court concluded that courts may account for hypothetical preference actions within a hypothetical chapter 7 liquidation when such an inquiry was factually warranted, was supported by appropriate evidence, and the action would not contravene an independent statutory provision. In this case, the court was satisfied that the $526,402.05 deposit would constitute an avoidable preference in the hypothetical liquidation at issue here. Accordingly, the court reversed and remanded for further proceedings. View "Schoenmann v. Bank of the West" on Justia Law