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.

Collections: Payroll Deduction

     Payroll deduction is still an excellent way to ensure timely payments. Debtor payments become virtually painless, and the debt is reduced without the debtor having to write a separate check. 

     Traditional payroll deductions (from company to employee's credit union) are not the only way to achieve this result. Voluntary wage assignments can be prepared and submitted through almost any payroll office. 

Bankruptcy: Lien Avoidance Case Review: After-Acquired Property

     In the case of Butler v. Southern O Corp the United States Bankruptcy Court at Roanoke, Virginia ruled that a debtor who received a Chapter 7 discharge could avoid a judicial lien filed in the previous year against the debtor's real estate in which he had no equity because of outstanding deeds of trust and for which he had filed a homestead exemption. In Butler the Court found as fact that the amount of the judicial lien (at least $115,000), plus the amount of other liens ($76,934), plus any exemption to which debtor might be entitled, exceeded the value of the property of $72,000.00.

     The Court held that the lien was entirely avoidable pursuant to Bankruptcy Code §522 (f). The Bankruptcy Court ruled that it was Congress's intention to protect any further equity the debtor may accumulate, by the reduction of the principal amount of the mortgage, from payments hereafter made by the debtors. Accordingly, the Bankruptcy Court ruled that any future increase in value accrued to the benefit of the debtor as after-acquired property was likewise exempt.