Tower Credit, Incorporated v. Martin Schott
850 F.3d 816
| 5th Cir. | 2017Background
- Tower Credit obtained a money judgment against Christon Jackson in Louisiana state court and secured a garnishment order served on Jackson’s employer on January 19, 2012.
- Tower collected garnished wages thereafter.
- Jackson filed Chapter 7 bankruptcy on November 17, 2012; Martin Schott was appointed trustee.
- The trustee sued under 11 U.S.C. § 547(b) to avoid garnishments taken within 90 days of the petition as preferential transfers, originally seeking $2,034.81, later stipulated to $1,756.04.
- Bankruptcy court granted summary judgment for the trustee; district court affirmed. Tower appealed, arguing the transfer occurred when the garnishment was served (before the 90-day window).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether garnished wages are "transfers" made when garnishment is served or when wages are earned | Trustee: Transfer occurs only when debtor acquires rights (i.e., when wages are earned during preference period), so garnishments of wages earned within 90 days are avoidable | Tower: Service of garnishment perfected transfer because no simple-contract creditor could thereafter acquire a superior judicial lien; thus transfer occurred before the preference period | Held for trustee: Under § 547(e)(3) and Supreme Court precedent, wages are not property until earned; transfers of wages earned within 90 days are avoidable despite earlier service of garnishment |
Key Cases Cited
- Barnhill v. Johnson, 503 U.S. 393 (1992) (federal law controls whether and when a transfer occurs under the preference statute)
- Local Loan Co. v. Hunt, 292 U.S. 234 (1934) (earning power not property until earnings come into existence for bankruptcy purposes)
- In re Mercer, 246 F.3d 391 (5th Cir. 2001) (standard of review on appeal from bankruptcy)
- In re Latham, 823 F.2d 108 (5th Cir. 1987) (lien perfected outside preference period does not attach to rights acquired during preference period)
- In re Morehead, 249 F.3d 445 (6th Cir. 2001) (wages earned during preference period are avoidable despite prior garnishment service)
- In re Freedom Group, Inc., 50 F.3d 408 (7th Cir. 1995) (post-Barnhill critique of pre-Barnhill holdings that garnishment service alone controls transfer timing)
- In re Conner, 733 F.2d 1560 (11th Cir. 1984) (held garnishment execution perfected transfer; criticized and distinguished in later decisions)