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On the other hand, if the funds used to pay the creditor were not part of the sale price for the debtor's assets, then it is unlikely that the payment diminished the debtor's estate. The Court goes through two lines of cases, those that hold it was property of the debtor and those that held it was not. It states: In this case, there is no smoking-gun connection . . . ." Warsco v. Preferred Tech. Group, 258 F.3d 557, 566 (7th Cir. 2001).
In Gray v. Travelers Insurance Co. (In re Neponset River Paper Co.), 231 B.R. 829 (B.A.P. 1st Cir. 1999), the Court carefully examines the rights of the debtor in funds advanced by a third party into an account at Debtor's law firm with complex rules for disposition and determines that the Debtor exercised sufficient control over those funds to characterize them as property of the Debtor for purposes of section 547. In Ramette v. Digital River, Inc. (In re Graphics Technology, Inc.), 306 B.R. 630, 635 (B.A.P. 8th Cir. 2004), aff'd, 113 F. App'x 734(8th Cir. 2004), the Court found that funds paid to the defendant during the preference period belonged to the debtor even though the debtor never had legal title to the funds. The court denied the defendants argument that the debtor had held the funds in a constructive trust for the benefit of the defendant.
In Casarow v. Chomenko (In re Cobb), 231 B.R. 236 (Bankr. D.N.J. 1999), the debtor withdrew $20,000 from her 401(k) Plan Account, put that money into a checking account, wrote a check to her ex in laws to repay a debt due to them and then subsequently filed her bankruptcy. The funds would not have been property of the debtor's estate had it been in the 401(k) Plan Account if the bankruptcy had been filed on the, day prior to the withdrawal. Interestingly, there is a sixty-day window after withdrawal of funds from such an account during which the owner may transfer the funds to another similar account. The court, nevertheless determined that the $20,000 did not retain their exclusionary status but rather became subject to inclusion in the debtor's estate upon their withdrawal and deposit into the debtor's personal account. Thus the Court characterized the transfer as a transfer of an interest of the Debtor in property which was
