663 B.R. 856
Bankr. E.D. Mich.2024Background
- Debtor Jean Schafer refinanced two liens on her mobile home through Frankenmuth Credit Union (FCU) in late 2023.
- The refinance process included paying off prior liens and FCU acquiring a new lien on the mobile home; however, a check to pay off one lien was lost and replaced on December 13, 2023.
- Paperwork to perfect FCU’s security interest (Applications for Title) was not submitted to the State until January 16, 2024, and FCU’s lien appeared on the title on January 17, 2024.
- Schafer filed a Chapter 7 bankruptcy petition on January 17, 2024—the same day FCU’s lien was perfected.
- The trustee sought to avoid FCU's lien as a preferential transfer under 11 U.S.C. § 547, arguing the late perfection made it avoidable.
- Both parties agreed on the material facts; the court considered cross-briefed summary judgment motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was the transfer of FCU's lien avoidable as a preferential transfer under § 547? | Trustee: FCU perfected after 30 days, within 90-day preference period, making transfer avoidable. | FCU: Not all preference elements met, and perfection delay excusable. | Yes, transfer was avoidable. |
| Did FCU’s late perfection allow it to receive more than in a hypothetical Chapter 7 without the transfer? | Trustee: Unencumbered equity would have gone to unsecured creditors; late perfection diminished estate. | FCU: Collateral always encumbered; estate didn't lose value; no diminution shown. | Yes, FCU's perfected lien deprived estate of otherwise available equity. |
| Was the late-perfected lien protected by the contemporaneous exchange defense? | Trustee: Perfection beyond 30-day grace under § 547(e)(2) fails contemporaneous exchange defense. | FCU: Parties intended contemporaneous exchange; filing delay was practical, not substantive. | No, not contemporaneous as a matter of law given statutory deadline. |
| Was summary judgment warranted based on the undisputed facts? | Trustee: No genuine issues of material fact; legal criteria met for summary judgment. | FCU: Insufficient evidence on estate diminution, factual questions remain. | Yes, summary judgment proper. |
Key Cases Cited
- In re Arnett, 731 F.2d 358 (6th Cir. 1984) (outlines and applies elements and defenses under § 547 for voidable preferences)
- In re Lee, 530 F.3d 458 (6th Cir. 2008) (holding that perfection of a lien that diminishes the estate is a voidable preference under § 547)
- In re Thrush, 388 F.3d 195 (6th Cir. 2004) (discussing Michigan law regarding perfection of security interests in mobile homes)