550 B.R. 299
M.D. La.2016Background
- Tower Credit obtained a money judgment against debtor Christon Jackson in 2009 and secured a garnishment order served on Jackson’s employer on January 19, 2012.
- Employer began withholding Jackson’s wages under that order; Tower received wage payments during the 90-day period before Jackson’s Chapter 7 petition filed November 17, 2012.
- Trustee (Martin A. Schott) sued in an adversary proceeding seeking to avoid $1,756.04 in garnished wages as preferential transfers under 11 U.S.C. § 547(b).
- Tower argued the “transfer” occurred when the garnishment was perfected under Louisiana law (service on employer in 2012 or the order date in 2009), which was more than 90 days before the petition.
- Trustee argued, relying on § 547(e)(3), that no transfer occurs until the debtor acquires rights in the property — here, when wages are earned — so amounts garnished within 90 days are avoidable.
- Bankruptcy Court granted summary judgment for the Trustee; the district court affirmed, holding § 547(e)(3) controls and the wages were transferred within the 90-day preference period.
Issues
| Issue | Plaintiff's Argument (Tower) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Whether wage garnishments are "transfers" under § 547(b) occurring at state-law perfection (service/order) or when debtor acquires rights (wages earned) | Transfer occurred when garnishment was perfected under state law (service on employer / order date), so payments were outside 90-day window | Under § 547(e)(3) federal law, no transfer occurs until debtor acquires rights; wages were earned within 90 days, so preferential | Held for Trustee: transfer occurs when wages are earned; garnishments within 90 days are avoidable |
Key Cases Cited
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (U.S. 2012) (textualist principles guide clear statutory interpretation in bankruptcy law)
- Barnhill v. Johnson, 503 U.S. 393 (U.S. 1992) (whether a transfer occurs is governed by federal bankruptcy law, not state law)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (U.S. 1994) (when Code text is clear, state law cannot defeat federal bankruptcy rules)
- Union Bank v. Wolas, 502 U.S. 151 (U.S. 1991) (discussing elements and purpose of § 547 preferences)
- Morehead v. State Farm Mut. Auto. Ins. Co. (In re Morehead), 249 F.3d 445 (6th Cir. 2001) (wage garnishments treated as transfers only when wages are earned under § 547(e)(3))
- Askin Marine Co. v. Conner (In re Conner), 733 F.2d 1560 (11th Cir. 1984) (contrary pre-Barnhill view that lien/perfection could fix transfer date)
- In re Coppie, 728 F.2d 951 (7th Cir. 1984) (pre-Barnhill decision treating garnishment lien as preventing future acquisition of rights)
- Riddervold v. Saratoga Hosp. (In re Riddervold), 647 F.2d 342 (2d Cir. 1981) (pre-Barnhill decision finding no transfer during preference period due to continuing lien)