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trouble. In very different contexts, Judge Lundin, in Gregory v. Cmty. Credit. Co. (In re Biggers), 249
B.R. 873 (Bankr. M.D. Tenn. 2000), and Judge Pearlman, in Dakmak v. U.S. Internal Revenue Serv. (In re Lutz), 212 B.R. 846 (Bankr. E.D. Mich. 1997), rev'd 241 B.R. 179 (E.D. Mich. 1999), worked hard to avoid the necessity of avoiding a transfer that seemed technically to fit within the letter of section 547(b) and that did not have a ready defense under section 547(c).
A recent Third Circuit Opinion delved into the purpose of section 547 to analyze a settlement trust plan structure. (In re Combustion Eng'g, Inc.), 391 F.3d 190, 239-240 (3d Cir. 2004), the court noted that section 547 operates to "ensure that equality among creditors is not undermined by transfers to creditors in contemplation of bankruptcy." Id. at 239. The court therefore concluded that a Chapter 11 plan appeared to discriminate against certain claimants with asbestos-related personal injury claims given plan structure relying on prepetition payment to settlement trust.
In order to constitute a preference, the transfer at issue must be made: (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) while the debtor was insolvent; (4) within ninety days before the filing of the bankruptcy petition or within one year before the filing of the petition if the creditor at the time of the transfer was an insider; and (5) to enable a creditor to receive more than the creditor would receive if a Chapter 7 liquidation had occurred.
The Bankruptcy Code definition of the term "transfer" is quite broad. A transfer includes, among other things, paying trade creditors for goods or services provided, granting collateral to a bank for security on antecedent debt, and judicial proceedings creating liens on the debtor's property. The voluntary creation of a lien on property of the debtor is preferential under the Bankruptcy Code. A transfer is considered preferential only if the item transferred belongs to the debtor.
In preference litigation, a creditor includes any entity that has a claim against the debtor that arose at the time of or before the debtor filed its bankruptcy petition. Due to the liberal interpretation given to the
