Weinman v. Alternative Revenue Systems, Inc., 552 B.R. 773

Background

Debtors Kwanza B. Stevens and Mindy M. Stevens filed Chapter 7 on Feb. 26, 2015; discharge entered June 1, 2015. Trustee sued ARS to avoid, preserve, and recover wage garnishments paid to ARS within the 90-day preference period, totaling $1,294.16.
ARS obtained a prepetition judgment against Mindy Stevens and served a continuing wage garnishment on her employer on Oct. 18, 2014 (outside the 90-day window).
Trustee contends each paycheck garnished and paid within the 90-day prepetition period is an avoidable preferential transfer under 11 U.S.C. § 547(b), relying on § 547(e) (transfer not made until debtor acquires rights).
ARS argues the relevant transfer occurred when the garnishment/writ (and lien) was created—before the 90-day period—so payments during the 90 days are not preferential.
Court finds each garnished paycheck constitutes a transfer under § 101(54) and § 547(e) controls: wages become property (and subject to transfer) only when earned, so garnishments of wages earned during the 90-day period are avoidable.
Because the record did not establish precisely which portions of the $1,294.16 were wages earned inside vs. outside the 90-day period, the court denied both parties’ summary judgment motions and ordered the parties to calculate/stipulate the avoidable portion or proceed to abbreviated trial.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a transfer for § 547(b) purposes occurs when a continuing garnishment writ is served or when wages are earned/paid	Trustee: § 547(e) makes a transfer occur only when debtor acquires rights; wages are property only when earned, so each paycheck garnished during 90 days is a transfer	ARS: Creation/service of the garnishment (a lien) was the transfer (preference period had passed); subsequent paycheck payments merely executed that earlier transfer	Held: Each garnished paycheck is a transfer under § 101(54) and, under § 547(e), a transfer occurs when wages are earned—so garnishments of wages earned within 90 days are avoidable
Whether payments pursuant to a prepetition continuing garnishment enable creditor to receive more than in Chapter 7	Trustee: Payments of wages earned during preference period enabled greater recovery and are avoidable	ARS: Prepetition garnishment fixed creditor’s priority; subsequent payments do not improve creditor's position vs. Chapter 7	Held: Court rejects ARS’s Straight-based argument; wage garnishments paid during the 90-day period enable higher recovery and are avoidable under the majority rule
Effect of § 101(54) inclusion of "creation of a lien" post-BAPCPA on wage-garnishment timing	Trustee: § 547(e) still controls timing—inchoate lien attaches only when wages are earned	ARS: Post-BAPCPA definition makes creation of lien itself a transfer, so service date governs	Held: Court finds § 101(54) includes creation of a lien but an inchoate continuing garnishment lien does not attach to future wages until those wages are earned; § 547(e) governs timing for wage transfers
Whether summary judgment is appropriate on the total amount avoidable where earnings timing is unclear	Trustee: $1,294.16 paid within 90 days is avoidable (subject to calculation)	ARS: Factual dispute about when wages were earned precludes summary judgment	Held: Denied both motions because the record does not resolve what portion of payments were for wages earned outside the 90-day period; parties ordered to stipulate or proceed to trial

Key Cases Cited

Local Loan Co. v. Hunt, 292 U.S. 234 (U.S. 1934) (debtor acquires rights in wages only when earned)
Barnhill v. Johnson, 503 U.S. 393 (U.S. 1992) (whether a transfer occurred is a matter of federal bankruptcy law)
In re Morehead, 249 F.3d 445 (6th Cir. 2001) (wages garnished during preference period are avoidable when earned within the 90 days)
Ute Mesa Lot 1, LLC v. First Citizens Bank & Trust Co. (In re Ute Mesa), 736 F.3d 947 (10th Cir. 2013) (notice of lis pendens not a § 101(54) lien because no present transfer)
In re Straight, 207 B.R. 217 (10th Cir. BAP 1997) (discussed re: payments under prepetition garnishments but factually distinguishable)
In re White, 258 B.R. 129 (Bankr. D.N.J. 2001) (debtor acquires right to wages only when earned; transfers occur upon earning)