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Summarizing by Lars Fuller

Tower Credit, Inc. v. Schott (In the Matter of Jackson)

Test case on preferences deepens a circuit split and lays the groundwork for certiorari.

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Case Type:
Case Status:
No. 16-30274 (5th Circuit, Mar 13,2017) Published
Court ruled that a preferential transfer of a debtor's garnished wages cannot occur until the debtor's wages are actually earned. Court concluded that the transfer was "perfected" under section 547(e)(1)(B) and (e)(3) when the debtor received an interest in his wages, not when an open-ended garnishment order was entered. Here, the order was entered 10 months before the bankruptcy filing, but the Court held that the relevant date for preferential purposes was the date(s) the garnished wages were actually earned by the debtor.
Procedural context:
Appeal from the Middle District of Louisiana, which affirmed the Bankruptcy Court's order on summary judgment in favor of the chapter 7 bankruptcy trustee, avoiding a $1,756.04 transfer.
Tower Credit obtained a money judgment against debtor Christon Jackson in 2009. In January 2012, Tower Credit obtained a garnishment order against Jackson's wages. Ten months later, on November 17, 2012, Jackson filed a chapter 7 bankruptcy petition. The chapter 7 trustee sought to avoid and recover the wages garnished by Tower Credit during the 90-day preference period. The parties stipulated that the amount in controversy was $1,756.04. Tower Credit argued that the transfer occurred ten months before the bankruptcy filing, in January, when the garnishment order was entered. The Bankruptcy Court disagreed and granted summary judgment in favor of the trustee.
Davis, Dennis and Southwick. Opinion by Dennis

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