Bankruptcy: Payment of Debt Incurred in the Ordinary Course of Business is not a Voidable Preference

     The 6th Circuit Court of Appeals, in the case of In Re Finn, upheld a finding that an otherwise preferential transfer is not avoidable if it was payment of a debt incurred in the ordinary course of the debtor's business or financial affairs. The Court held that even the incurring of long-term consumer debt satisfies the Bankruptcy Code §547 (c) (2) (A) exception from avoidance rules, as long as it is a normal financial relationship. The Court held that a transfer can be in the ordinary course of financial affairs even if it is the first of such transactions undertaken by the debtor.

     It should be noted however, that a majority of courts hold that interest payments on long term debts are not covered by the ordinary course of business exception. See Wolas v. Union Bank and In Re ZZZZ Best Co., Inc.

Bankruptcy: Lien Avoidance: Household Goods

     Bankruptcy Code §522(f)(2)(A) provides debtors with the means to avoid a creditors lien on household goods. A good example is the case of McGreevy v. ITT Financial Services, decided by the United States District Court at Baltimore, Maryland. 

     In McGreevy the debtors lived in a town house and attempted to claim a shotgun and a rifle as household goods. The Court concluded that the firearms were not household goods because they were used primarily for recreation, not for the protection of the home. The Court ruled that there must be a functional nexus between the goods claimed and the household. The Court defined household goods as "those items of personal property that are typically found in or around the home, and used by the debtor or his dependents to support and facilitate day-to-day living within the home, including maintenance and upkeep of the home itself". Therefore, it may be reasonable to conclude that if firearms are maintained primarily for home protection, a connection would exist, and the goods would be covered under Bankruptcy Code §522(f)(2)(A).

     In the case of Fulton v. American General Finance, decided by the United States Bankruptcy Court at Harrisburg, Virginia, the Court was asked by the debtor to avoid the creditor/finance companies' liens with respect to a personal computer and a pistol and a rifle. The Court in Fulton had to first determine what was the definition of "household goods". The Court applied the definition rendered by the Fourth Circuit in McGreevy, which, as we discussed, requires a functional nexus between the goods and the household. In Fulton the Court found in regard to the personal computer, a nexus between 1) the keeping of the expenses of the family, 2) the writing of checks for the family, and 3) education for the debtor's child, and, life within the household. In regard to the pistol and the rifle, however, the Court did not find a nexus between the weapons and daily life within the household. The Court found that the weapons were not used to support and facilitate daily life within the household. The best that the debtor's testimony could have established was that the debtor had some desire to have these weapons on hand to protect his household and family from potential threats of bodily harm to person or injury to property. Accordingly, the Court in Fulton avoided the lien on the computer, but not the lien on the pistol and the rifle. I still think that it is reasonable to conclude that if firearms are maintained primarily for home protection, a connection would exist, and the goods would be covered under Bankruptcy Code §522(f)(2)(A).