MEMORANDUM DECISION ON MOTIONS FOR SUMMARY JUDGMENT
The chapter 7 trustee brought this adversary proceeding to avoid and recover a preferential transfer made by the debtors to Henry and Diane Schabel, parents of the debtor, Ronald Schabel. After the defendants answered the complaint and asserted an affirmative defense, the parties filed simultaneous motions for summary judgment.
This court has jurisdiction under 28 U.S.C. § 1334 and this is a core proceeding under 28 U.S.C. § 157(b)(2)(F). This decision constitutes the court’s findings of fact and conclusions of law under Fed. R. Bankr.P. 7052. For the reasons stated below, the defendants’ motion for summary judgment is granted and the trustee’s motion for summary judgment is denied.
BACKGROUND
The relevant facts are not in dispute. The debtors, Ronald and Deanna Schabel, filed a chapter 7 bankruptcy on November 3, 2004. In response to question number three on their Statement of Financial Affairs, “Payments to creditors,” the debtors listed the defendants as creditors with an amount paid of $9,000. They provided the following explanation: “monthly payments equal to [$]9,000 in the last twelve months. Henry and Diane [the defendants] have made a subsequent new transfer of $9,153.00 to the Debtors on 10-21-04 which Debtors exempted.”
Several years prepetition, the defendants placed a second mortgage on their home and loaned the value received to the debtors for the debtor husband’s business. That loan was made on August 20, 1998, in the amount of $82,042.90. The debtors made monthly payments of $860.09 to the mortgage holder until September 20, 2004. At that time, the balance on the loan was $60,000.00. This loan carried an interest rate of 9.75% until 2001 and thereafter carried an interest rate of 6.5%. During the one year prepetition preference period the defendants received a benefit of approximately $9,000.00.
On September 27, 2004, the debtors met with their bankruptcy attorney and were advised of the preference problem, as well as possible defenses. In anticipation of a possible preference action and to help the debtors reorganize their finances, the defendants and the debtors entered into a second loan agreement. That loan had no interest.
On October 25, 2004 1 nine days before the bankruptcy was filed, the debtor’s par *379 ents transferred $9,153.00 to the debtor and his spouse. The debtors placed the funds into an account at the Marine Credit Union and on the date of the petition the balance in that account was $9,025.00. The debtors claimed those funds as exempt.
The trustee filed an adversary proceeding under 11 U.S.C. § 547(b)(1) and § 550(a)(1) against the defendants to avoid and recover the alleged preferential monthly transfers made by the debtor, Ronald Schabel, to his parents during the twelve months prepetition. The defendants asserted a subsequent new value defense to the action and these cross-motions for summary judgment followed.
ARGUMENTS
The defendants do not dispute that during the twelve months prior to the petition date that the debtors paid approximately $9,000 to the defendants’ second mortgage holder in repayment of the 1998 loan. The defendants believe that their second loan, a subsequent transfer of $9,153.00, which also occurred prepetition, made the debtors’ estate whole, and did not deplete the estate’s assets to the disadvantage of other creditors.
See Matter of Prescott,
The defendants assert the transfer meets the requirements for the new value defense: the creditors received a transfer which was otherwise voidable as a preference under section 547(b); after receiving the preferential transfer, the preferred creditors advanced additional credit to the debtor on an unsecured basis; and the additional post-preference unsecured credit was unpaid in whole or in part as of the date of the petition.
See In re Globe Building Materials, Inc.,
The trustee acknowledges that under section 547(c)(4) new value is a defense to a preference claim. However, that is not the case here. The funds were placed into an exempt category for the sole purpose of defeating a preference claim and to the detriment of other unsecured creditors. The trustee asserts the transfer of value was of a temporary nature and not made in good faith. Arguably, the undocumented “loan” could be returned immediately after the bankruptcy was concluded, or the funds could be kept and construed as a gift. Since the filing of the petition, the debtors have repaid $5,000 on the “loan,” resulting in the inability to assert the new value defense.
See In re Login Bros. Book Co.,
DISCUSSION
Summary judgment is required “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R.Civ.P. 56(c).
Section 547(b) of the Code sets forth the essential elements of a preference: (1) any transfer; (2) of an interest of the debtor in property; (3) to or for the benefit of a
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creditor; (4) for or on account of an antecedent debt; (5) made while the debtor was insolvent; (6) made on or within 90 days before filing the petition, or between 90 days and one year of the petition’s filing if such creditor was an “insider”; and (7) that enables such creditor to receive more than it would otherwise receive in a chapter 7 liquidation case. Section 547(g) provides that “the trustee has the burden of proving the avoidability of a transfer under subsection (b).” See
In re Jones,
A preferential transfer will not be avoidable to the extent that the transferee, after such transfer, gives new value to the debtor on an unsecured basis. 11 U.S.C. § 547(c)(4). This exception is premised on the theory that “to the extent unsecured new value is given to the debtor after a preferential transfer is made, the preference is repaid to the bankruptcy estate.”
Matter of Prescott,
Congress intended section 547(c)(4) to encourage creditors to continue doing business with troubled debtors by protecting transfers received by creditors from preference actions, to the extent that the creditors provided goods that replenished the estate during the preference period.
In re Armstrong,
291 F.Sd 517, 525 (8th Cir.2002). The exception most obviously applies to revolving credit relationships; protecting a creditor who extends a “revolving credit” to a debtor is not unfair to other creditors because preferential payments are replenished by the preferred creditor’s extensions of new value to the debtor.
Matter of Toyota of Jefferson, Inc.,
The trustee points out that a portion of the second transfer has been repaid post-petition by the debtors. Courts agree that to satisfy the first two elements of the subsequent new value defense, the new value must be given after the preferential transfer and the new value must be given on an unsecured basis, or at least not subject to an unavoidable security interest. That is undisputed here. However, there is a split of authority among the circuits as to whether the new value must remain unpaid as of the date of filing and at least one case that disallowed the defense when the goods constituting new value were returned after filing. The approach initially favored by a majority of the courts required that the new value extended remain unpaid on the petition date.
See, e.g., Matter of Kroh Bros. Dev. Co.,
Nevertheless, in
Prescott,
the Seventh Circuit expressly declared that “[s]ection 547(c)(4) establishes a subsequent advance rule whereby a preferential transfer is insulated from a trustee’s avoiding powers to the extent that a creditor extends new value, which is unsecured and re-mams
unpaid.” Prescott,
The court in
In re Login Bros. Book Co.,
The trustee points out that the second loan to the debtors was undocumented. The fact that the debtor/husband’s parents have partially been repaid indicates that it probably was a valid loan. Even though it was presumably discharged, the debtor could voluntarily repay the loan, using exempt funds or funds from any other source. 11 U.S.C. § 524(f). Indeed, 11
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U.S.C. § 547(c)(4) does not even require that the new value be in the form of a loan; it simply must not be secured by an otherwise unavoidable security interest or subject to an otherwise unavoidable transfer. One bankruptcy court determined that a corporate insider’s subsequent advances to the debtor-corporation, after the debtor had engaged in alleged preferential transfers for the insider’s benefit by paying corporate debts that the insider had guaranteed, did not have to be made pursuant to an enforceable credit agreement in order to constitute subsequent “new value,” within the meaning of section 547(c)(4). The transfers could constitute “new value,” regardless of whether they were properly characterized as loans, charitable contributions or even gifts.
In re Pro Page Partners, LLC,
In applying the new value test, it should be noted that there is no statutory requirement that the new value be related to the preference or that the new value be made in good faith by the creditor. 2 Additionally, there is no legal authority that an insider bears a heightened burden of proof with respect to the section 547(c)(4) defense. Moreover, there is no case law holding that diminishment of the estate defeats the defense, even though many cases use the replenishment of the estate as the rationale for the defense. Finally, the words of the statute do not compel consideration of the size of the distributable estate in determining whether the defense applies, that is, whether the estate was in fact “replenished.” The creditors are entitled to the defense allowed by 11 U.S.C. § 547(c)(4) notwithstanding that the debtors placed that new value in assets exempt from distribution to creditors. Once the transfer had been made, the debtors were entitled to save those funds or spend them, and the act of the debtor in claiming the funds exempt does not destroy the creditors’ defense.
An unpublished decision,
In re Hoerr,
No. 04-82851,
Accordingly, the trustee’s motion for summary judgment is denied, and the defendants’ motion is granted. The adver *383 sary proceeding will be dismissed without costs to either party. A separate order consistent with this decision will be entered.
Notes
. The date of the transfer in the statement of affairs and tire stipulated facts differs by four *379 days. This discrepancy is irrelevant.
. Section 60(c) of the former Bankruptcy Act, from which section 547(c)(4) was derived, did include a good faith requirement:
If a creditor has been preferred, and afterward in good faith gives the debtor further credit without security of any kind for property which becomes a part of the debtor’s estate, the amount of such new credit remaining unpaid at the time of the adjudication in bankruptcy may be set off against the amount which would otherwise be recoverable from him.
11 U.S.C. § 96(c) (1978).