280 F. Supp. 846 | W.D. Va. | 1968
OPINION AND JUDGMENT
This matter is before the court on the petition of the Lewis Gale Hospital, Roanoke, Virginia, garnishing creditor, for review of the order of the referee in bankruptcy setting aside as a voidable preference a payment of $200 to the petitioner from the bankrupt’s employer under garnishment proceedings.
The facts are these. On November 20, 1964 the garnishing creditor obtained a judgment against the bankrupt in the amount of $575.40 and $4.25 court costs. On September 11, 1967 the garnishing creditor instituted garnishment proceedings in the Circuit Court of Roanoke County, Virginia, returnable November 3, 1967. (The referee did not challenge
The question on this petition is: does the institution of garnishment proceedings by a creditor show that he had reasonable cause to believe the debtor-bankrupt was insolvent? If so, and if this belief continued at the time of the transfer, the transfer may be set aside as voidable preference under Section 60 of the Bankruptcy Act.
“The test of when a creditor has such reasonable cause has often been said to be when such a state of facts is brought to the creditor’s notice, respecting the affairs and pecuniary condition of the debtor, as would lead a prudent business person to the conclusion that the debtor is insolvent.” I-T-E Circuit Breaker Co. v. Holzman, 354 F.2d 102, 105 (9th Cir. 1965); 3 Collier, Bankruptcy 60.53 (14th ed. 1967). The creditor does not have to have actual knowledge or belief of the debtor’s insolvency, but only reasonable cause to believe that he is insolvent at the time of transfer. Holzman, supra; In Re Markham, 254 F.Supp. 948 (W.D.Va.1966). And Section 60 requires more than mere suspicion or apprehension that the debtor may be insolvent. Grant v. National Bank, 97 U.S. 80, 24 L.Ed. 971 (1877); In Re Markham, supra.
Here the petitioner instituted the garnishment proceedings to effect collection of a debt which had remained unpaid for several years. Garnishment is a method of collecting a debt with the aid of the judiciary where a creditor is otherwise unable to obtain payment from the debtor. It is an unwarranted conclusion to say without more evidence that every-time an unpaid creditor institutes garnishment proceedings he knows or has reasonable cause to believe that the debt-
However, another matter which was not considered by the referee is involved here and must be dealt with. In Virginia “garnishment is the process by which a judgment creditor enforces the lien of his execution against any debt or property due his judgment debtor in the hands of a third person, garnishee.” Lynch v. Johnson, 196 Va. 516, 84 S.E.2d 419, 421 (1954). Because petitioner obtained a lien as a result of the execution which occurred within four months before the filing of the bankruptcy petition, Section 67 is called into play.
. Bankruptcy Act § 60, 11 U.S.C.A. § 96 (Supp.1967). The pertinent portions are:
§ 60 a. (1) A preference is a transfer, as defined in this title, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this title, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class.
b. Any such preference may be avoided by the trustee if the creditor receiving it or to be benefited thereby or his agent acting with reference thereto has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent.
. Bankruptcy Act § 67, 11 U.S.C.A. § 107 (1953). The pertinent portions are:
§. 67 a. (1) Every lien against the property of a person obtained by attachment, judgment, levy, or other legal or equitable process or proceedings within four months before the filing of a petition initiating a proceeding under this title by or against such person shall be deemed null and void (a) if at the time when such lien was obtained such person was insolvent or (b) if such lien was sought and permitted in fraud of the provisions of this title: * * *.