April 20, 2009
6th Circuit Rules that Transfer by "Convience Check" from One Credit Card to Another within Preference Period is an Avoidable Preference to Recipient
Brief by Roksana Moradi, third year student at University of West Los Angeles School of Law.
MBNA Am. Bank, N.A. v. Meoli, --- F.3d ---, 2009 WL 961209 (6th Cir. 2009)
Issue: Are “convenience checks” written by a debtor on a credit card account and sent to a different credit card as payment within the preference period, preferential transfers within the meaning of 11 U.S.C. §547(b)?
Debtor Sharrene Wells wrote two “convenience checks” from her Chase credit card account and sent the checks to MBNA during the 90-day period preceding her petition for bankruptcy protection. Chase Bank had offered these checks and advertised that they could be used to “transfer balances, pay bills, make a purchase, [or] get extra cash.” The chapter 7 trustee sued MBNA to avoid and recover, among other transfers, the amount of the two $5,000 convenience checks. The trustee filed a motion for summary judgment arguing that these were preferential transfers within the provisions of § 547(b). The bankruptcy court granted the trustee’s motion and entered a judgment against MBNA. MBNA appealed to the Bankruptcy Appellate Panel which affirmed.
The 6th Circuit affirmed also. The issue was whether the two $5,000 convenience checks were transfers by the debtor of the debtor’s interest in property. The Appellate Court relied on McLemore v. Third National Bank (In re Montgomery), 983 F.2d 1389 (6th Cir. 1993) in which the court explained that cash equivalents, like credits in a bank account, may constitute property of the debtor. The court explained that the degree of control a debtor exercises over the property transferred is the principal determinant of whether the debtor has “‘an interest’” in the property such that its transfer may be avoided under § 547(b).
The court stated, “Wells was free to use the convenience checks for any reason she chose, including paying down her credit card balance with MBNA.” Further, that “ in making her decision to do just that and then drawing the checks on her Chase Bank credit card account, Wells exercised complete control over the funds drawn, in which she had an ownership interest.”
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Can the court's decision get parsed into these parts? I.e., you break it down into: (1) property; (2) in which a debtor has an interest. For instance, the issue of "control", goes to both whether the debtor has an interest in the thing and whether the thing is property. The court's expression of the economic substance of the transaction was predicated upon the notion that the debtor had control of the funds and could direct it for any purpose. In other words, the credit was like cash because the debtor had control.
Posted by: Thirteen | Apr 21, 2009 6:08:38 AM