Freedom Group, a bankrupt, filed an adversary proceeding against Lapham-Hickey, seeking to undo what it claimed had been a preferential transfer resulting from a judicial seizure of Freedom Group’s bank account. 11 U.S.C. § 547. The bankruptcy judge agreed with Freedom Group and ordered Lapham-Hickey to return the money, but the district court reversed, so the case comes to us on Freedom Group’s appeal.
The facts were stipulated. On June 2 Lap-ham-Hickey obtained a judgment for $7,335.49 (plus interest and costs) against Freedom Group in an Indiana state court. *410 Ten days later, the court entered an order called a “notice of garnishment” in favor of Lapham-Hickey, and on June 15 Lapham-Hickey served the order on Freedom Group’s bank. The balance in Freedom Group’s bank account that day was only $108.25. But on the next day Freedom Group deposited $18,-000 in the account. On the following day— June 17,1992 — the state court entered a final order of attachment ( = garnishment), directing the bank to pay any and all money in Freedom Group’s account up to the limit of the judgment. In compliance with this order, the bank cut a check to Lapham-Hickey for $7,743.11 (the difference between that amount and the amount of the judgment representing, we assume, interest). Freedom Group declared bankruptcy on September 14, 1992. The sequence, then, was: judgment; notice of garnishment issued; notice of garnishment served on bank; bank account augmented by large deposit; final order of attachment (equivalently, of garnishment) entered; bank pays creditor, pursuant to that final order; debtor declares bankruptcy.
June 15, the day the notice of garnishment was served on the bank, was the ninety-first day before the declaration of bankruptcy. June 16, the day the $18,000 was deposited in Freedom Group’s bank account, was the ninetieth day before the bankruptcy. June 17, the day the final order of attachment was issued, was the eighty-ninth day before the bankruptcy. If the transfer of the $7,743.11 occurred within 90 days of the bankruptcy— that is, occurred anytime after June 15 — it is avoidable; otherwise not. A preferential transfer is avoidable only if made within 90 days before bankruptcy was declared. 11 U.S.C. § 547(b)(4)(A).
The Bankruptcy Code defines “transfer” broadly, as “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property,” 11 U.S.C. § 101(54), and provides, so far as bears on this case, that a preferential transfer “is made ... at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time.” 11 U.S.C. § 547(e)(2)(A). But although the Code defines transfer and specifies when a transfer is made — thus making whether and when a transfer occurs issues of federal law,
Barnhill v. Johnson,
The purpose of allowing preferential transfers to be set aside is to prevent debtors who are tottering toward bankruptcy from playing favorites among their creditors, trying to keep alive a little longer by placating the most importunate ones. The reason for worrying about this favoritism is that the possibility of it makes creditors less likely to forbear — more likely to insist on immediate
*411
payment — and, if immediate payment is not forthcoming, to sue and obtain judgments, thus increasing the costs to all creditors, retarding an orderly liquidation, and hurrying the debtor into bankruptcy faster than if creditors did not have to fear each other.
In re Taxman Clothing Co.,
The position for which Lapham-Hickey contends undermines this policy in two ways. The first has to do with the continuing character of the. notice of garnishment. The notice does not freeze just the amount of money in the garnished bank account on the date of the notice. It freezes any increments up until the service of the final order of attachment. When that order is served, the judgment creditor becomes entitled to whatever money has accumulated in the account, up to the level of the judgment. How much that shall be is within the debtor’s discretion to decide. Freedom Group did not have to deposit $18,000 — or l<t — in its bank account after the notice of garnishment was issued. That was a decision made (or effectuated) by Freedom Group within ninety days of declaring bankruptcy, and thus during the period of avoidable preferences. The effect was to put one of its creditors, the one that had succeeded in garnishing its bank account, ahead of the others — and that is just the sort of thing that the preferential-transfer statute is intended to prevent. Compare Jackson, supra, at 145.
Lapham-Hickey argues that even though it did not pocket the $18,000 until after the ninety-day countdown to bankruptcy began, the transfer relates back to the ninety-first day, the day of the notice of garnishment, because the notice “perfected” Lapham-Hickey’ s claim to the contents of Freedom Group’s bank account. But perfection and transfer are distinct concepts, as is plain from the provision of the Code that we quoted earlier on the timing of a preferential transfer. “Perfection” refers to the priority of rights among creditors.
Global Distribution Network v. Star Expansion Co.,
The second way in which Lap-ham-Hiekey’s position undermines the purposes of preference avoidance arises from the tentative nature of a notice of garnishment, and shows that Lapham-Hickey is not entitled to keep even the $108.25 that was in the bank account when the notice was served. The notice of garnishment is like a preliminary injunction. Cf.
Pride Shipping Corp. v. Tafu Lumber Co.,
We are mindful of the flock of cases which equate perfection to transfer for purposes of applying the preference-avoidance provision—indeed which hold specifically that a transfer occurs within the meaning of the Code when a notice of garnishment is served. In
re Battery One-Stop Ltd.,
Many of the cases rely on 11 U.S.C. § 547(e)(2)(B), which provides, as an alternative time at which a preferential transfer occurs, “the time such transfer is perfected, if such transfer is perfected after 10 days.” But this provision is intended for the case in which the transfer occurs first, and is later perfected. Here we had perfection, but no transfer until the right of the favored creditor to the money was determined, which took place within the 90-day preference period.
Naturally we are given pause by the' Sixth Circuit’s decision in In re Battery One-Stop Ltd., supra, because it was decided after Barnhill. But it failed even to cite, let alone attempt to distinguish, Barnhill, and it does not discuss, let alone alleviate, our concern that treating the service of the notice of garnishment as the transfer would undermine the policy behind the preference-avoidance provision. It does not discuss that policy-
We conclude that a garnishment or attachment does not transfer money or other property to a creditor, for purposes of determining whether the transfer is an avoidable preference, until a final order of garnishment or attachment is issued. Until then, the transfer is tentative, its amount uncertain, and control or influence retained by the debt- or to be used possibly to play favorites among his creditors. The judgment is therefore reversed with instructions to grant judgment to Freedom Group.
Because our decision creates an intercircuit conflict, we have circulated it to the full court pursuant to 7th Cir.R. 40(f). No one voted to hear the case en banc.
REVERSED.