Bankruptcy: Direct Payments are not a Voidable Preference

     The 6th Circuit Court of Appeals, in the case of In Re Arnold, upheld a finding that payments made by the contractor directly to the subcontractor/debtor's material men were not a voidable preference because the payments were not part of the bankruptcy estate. The Court held that the payments were not property of the estate because the general contractor had an independent contractual obligation to pay the material man if the debtor did not. In so ruling the Court rejected the Trustee's argument that the money used for the payment was effectively the debtor's money, in the sense that ordinarily it would have been paid by the general contractor to the debtor, and the debt to the material men was the debtor's debt.