513 B.R. 553
Bankr. N.D. Ill.2014Background
- Steven Miszkowicz and Connie Gipple filed a Chapter 7 petition on October 7, 2011; Philip V. Martino is the chapter 7 trustee (plaintiff).
- Defendants Eugenia Miszkowicz and Mark Miszkowicz are insiders of the debtor; MILP is an Arizona limited partnership in which Steven held an interest.
- During the one-year insider preference period (Oct 7, 2010–Oct 7, 2011), Miszkowiczs made loans totaling at least $100,000 to Steven from personal funds.
- On March 25, 2011, the defendants set off the loans against Steven’s MILP capital account, reducing it to $0, and subsequently assigned 75% of Steven’s MILP interest to Eugenia and 25% to Mark.
- Plaintiff seeks avoidance and recovery of $101,787 transferred via the loan setoff and the assignment, under 11 U.S.C. § 547(b).
- Court finds the transfers were preferences, not ordinary-course transactions, and awards $76,340.25 to Eugenia and $25,446.75 to Mark, with MILP not liable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the transfers are avoidable preferences under § 547(b) | Martino; transfers were to insiders on antecedent debt, reducing the debtor’s estate. | Miszkowiczs; transfers were either ordinary-course or valid setoffs under partnership terms. | Yes; transfers are avoidable preferences. |
| Whether the transfers occurred within the insider preference period | Martino; both transfers occurred within 1 year before filing due to insider status. | Miszkowiczs; some transfers were ordinary-course draws. | Yes; transfers occurred within 1 year of filing to insiders. |
| Whether the ordinary-course defense under § 547(c)(2) applies | Martino; the debt/transactions were not incurred in ordinary course, so defense fails. | Miszkowiczs; loans/advances were ordinary-course draws from MILP. | No; ordinary-course defense rejected; transfers avoidable. |
| Whether the transfers are subject to recovery under § 550 and impact of § 502(d) | Martino; recover the avoided transfers for the estate; claims to be disallowed until recovery. | Miszkowiczs; not applicable or timely. | Yes; trustee may recover under § 550; defenses to § 502(d) disallowed until recovery. |
Key Cases Cited
- In re Eckman, 447 B.R. 546 (Bankr.N.D.Ohio 2010) (ordinary-course test; burden on creditor seeking defense)
- Kleven v. Household Bank, F.S.B., 334 F.3d 638 (7th Cir. 2003) (ordinary course defense details and burden of proof)
- Barber v. Golden Seed Co., Inc., 129 F.3d 382 (7th Cir.1997) (relationship-specific ordinary course considerations)
- In re Midway Airlines, Inc., 69 F.3d 792 (7th Cir.1995) (burden to prove debt incurred in ordinary course)
- Danning v. Bozek (In re Bullion Reserve of N. Am.), 836 F.2d 1214 (9th Cir.1988) (property transferred must be of the debtor for § 547)