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security interest in commingled proceeds is calculated differently in an insolvency proceeding, such as a case under Chapter 7, than it is before the instigation of insolvency proceedings, such as at the time of the preference payments." Id. (emphasis omitted).
A fully secured creditor will not be vulnerable to a preference so long as the payment was made on the debt that was fully secured. However, a payment to an undersecured creditor may be preferential. Swanson v. Montello State Bank (In re Hill), 210 B.R. 1016 (Bankr. E.D. Wis. 1997). Carolyn's Kitchen, Inc. v. Cybergenics Corp. (In re Carolyn's Kitchen, Inc.), 209 B.R. 204 (Bankr. N.D. Tex. 1997). For a calculation of the greater percentage test see Hager v. Gibson, 109 F.3d 201 (4th Cir. 1997). However, a payment upon a partially secured claim is avoidable to the extent it decreases the unsecured indebtedness. The court must examine the value of the collateral at the time of the transfer, not the date of filing. Telesphere Liquidating Trust v. Galesi (In re Telesphere Commc'ns, Inc.), 229 B.R. 173 (Bankr. N.D. Ill. 1999); see Am. Honda Fin. Corp. v. A. Angelle, Inc. (In re A. Angelle, Inc.), 230 B.R. 287 (Bankr. W.D. La. 1998).
In order to determine whether an undersecured creditor received a greater percentage recovery on its debt than it would have under Chapter 7 the following two issues must first be resolved: (1) to what claim the payment is applied and (2) from what source the payment comes. Krafsur v. Scurlock Permian Corp. (In re El Paso Refinery, L.P.), 171 F.3d 249 (5th Cir. 1999). If the payment to an undersecured creditor is applied to the unsecured portion of the debt, then the undersecured creditor will have recovered a greater percentage on this claim if the estate cannot pay its unsecured creditor 100% of these claims. In contrast, if the undersecured creditor applies the payment to the secured portion of the debt, the creditor effectively releases a portion of its collateral from its security interest, that is, its secured claim is reduced, freeing up a corresponding amount of collateral. In this situation, the creditor does not receive a greater percentage
