Opinion
Bankruptcy No. 00-31634, Chapter 7; Adversary No. 01-7024
October 4, 2001
MEMORANDUM AND ORDER
This case is before the Court on Complaint filed on April 27, 2001, by Debtor Cletus Burbach ("Burbach"). Burbach initiated this adversary proceeding seeking a determination that Providian's garnishment of his wages within 90 days of filing for bankruptcy was a preferential transfer and is avoidable pursuant to 11 U.S.C. § 547. By Answer filed June 4, 2001, Providian generally denied that its garnishment of Burbach's wages constituted a preferential transfer. It also affirmatively alleged that the garnished wages are not avoidable because Providian received less than $600.00 from each garnishment and that Burbach's action is time barred because it was filed after the bankruptcy case was closed.
On July 5, 2001, Providian filed a motion for summary judgment, asserting Burbach could not recover the garnished wages because there was no statutory basis for Burbach's claim that the wages are exempt. This court denied Providian's motion by Order dated August 10, 2001, concluding the garnished wages may constitute property of the bankruptcy estate and may be exemptible under the general state exemption statutes as codified in N.D.C.C. ch. 28-32. Thus, the issue remaining for trial was whether the garnished wages were recoverable as a preferential transfer under 11 U.S.C. § 547. The parties waived trial and agreed to submit the case on stipulated facts. The following constitutes this court's findings of fact and conclusions of law.
I. FINDINGS OF FACT
The facts as admitted by stipulation are as follows:
1. Providian obtained a judgment against Burbach in Burleigh County Court on January 31, 2000, in the amount of $7,275.20.
2. Pursuant to the garnishment issued by Providian to Burbach's employer, Burlington Northern, there were four separate garnishments issued. The checks and amounts remitted were as follows:Date of Check Amount
9/18/00 $502.09
10/02/00 $502.08
10/17/00 $502.09
10/31/00 $502.09
3. Burbach filed for bankruptcy on November 2, 2000.
4. Burbach claimed the sum of $2000.00 of garnished wages as exempt.
5. Providian did not object to Burbach's claimed exemptions.
Although not included in the stipulation, other relevant facts of record are that the order for relief was entered, and the Chapter 7 trustee was appointed, on November 2, 2000. The case was closed on February 21, 2001, but was reopened on May 3, 2001, upon Burbach's motion.
II. CONCLUSIONS OF LAW
Preferences are governed by section 547 of the Bankruptcy Code, and the trustee must prove, by a preponderance of the evidence, the following elements:
Generally, only the trustee may bring an action to avoid a prepetition transfer pursuant to § 547(b). However, a debtor has standing to avoid a transfer if: (I) the property transfer would have been exempt; (2) the property was not transferred voluntarily; and (3) the trustee has not sought to bring an avoidance action. See 11 U.S.C. § 522 (g) — (h); James v. Planters Bank, (In re James), 257 B.R. 673, 675 (B.A.P. 8th Cir. 2001). Here, the elements have been met, and Burbach has standing to avoid the transfer.
1. a transfer of the debtor's property;
2. made within ninety days before the date of the petition filing;
3. made to or for the benefit of the creditor;
4. on account of an antecedent debt;
5. while the debtor was insolvent;
6. which enabled the creditor to receive more than it would have received in a Chapter 7 liquidation if the transfer had not been made.
Da-Sota Elevator Co. v. Minnesota Elevator. Inc. (In re Da-Sota Elevator Co.), 135 B.R. 873, 876 (Bankr. D.N.D. 1991) (citing In re Gilbertson, 90 B.R. 1006, 1009 (Bankr. D.N.D. 1988)); 11 U.S.C. § 547. Providian has not specifically challenged that any of the elements of proving a preferential transfer have not been met. Rather, Providian asserts the garnished wages are not avoidable because Providian received less than $600.00 from each garnishment and because Burbach's action is time barred because it was filed after the bankruptcy case was closed. These assertions are discussed in turn.
A. 11 US.C.547(c)(8)
Pursuant to section 547(c)(8) of the Bankruptcy Code, a debt may not be avoided in a case filed by an individual debtor whose debts are primarily consumer debts if "the aggregate value of all property that constitutes or is affected by such transfer is less than $600." 11 U.S.C. § 547(c)(8). In Electric City Merchandise Co. v. Hailes, (In re Hailes), 77 F.3d 873 (5th Cir. 1996), the Fifth Circuit Court of Appeals addressed the issue of whether, under section 547(c)(8), a court may aggregate all transfers to a single creditor to determine whether the creditor received $600 in value in the pre-filing period or whether each transfer must be evaluated individually. The court in Hailes concluded that the plain meaning of section 547(c)(8) and the legislative history of that provision allow multiple transfers to a single creditor made during the preference period to be aggregated when determining whether the $600 threshold has been met. Hailes, 77 F.3d at 874. This court finds the rationale of the court in Hailes instructive:
Section 547(c)(8) applies when the "aggregate value" of "all property" that constitutes or is affected by a "transfer" is less than $600. If each payment or transfer to a single creditor had to be considered individually for purposes of the $600 requirement, the terms "aggregate" and "all" would be meaningless. Moreover, § 102(7) of the Rules of Construction for the Bankruptcy Code supports the conclusion that multiple transfers to a single creditor should be aggregated under § 547(c)(8). Section 102(7) states that "the singular includes the plural." Under this rule of construction, the term "transfer" in § 547(c)(8) can mean more than one transfer.
Therefore, the aggregate value of several transfers should be considered to determine whether a creditor has received $600 in value. Section 547(c)(8) legislative history further supports our conclusion. In enacting this exception to the preference rule, Congress intended to allow debtors to transfer small amounts of money to consumer creditors before the filing of a bankruptcy petition, despite the fact that the transfers might have a preferential effect. However, if we were to consider all transfers to a single creditor within the ninety-day pre-filing period individually in calculating whether the creditor has received $600, a consumer creditor could recover thousands of dollars from a pre-petition debtor under this small preference exception simply by requiring the debtor to transfer $599 in value at a time. Such an interpretation would clearly be contrary to Congress' intentions.
Aggregating all transfers to a creditor in the pre-filing period to determine whether the creditor has received $600 will preserve consumer creditors' small preference exception without creating a windfall.
Hailes, 77 F.3d at 874-75 (citations omitted) (emphasis in original).
Accordingly, although individual garnishments by Providian were each less than $600, the aggregate amount was more than $600, and section 547(c)(8) does not prevent the avoidance of the garnished wages as a preferential transfer.
B. 11 U.S.C. § 546(a)
Pursuant to section 546(a) of the Bankruptcy Code, an avoidance action under section 547 may not be commenced after the earlier of:
(1) the later of—
(A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1202, or 1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or
(2) the time the case is closed or dismissed.
In order to determine if Burbach initiated the adversary proceeding against Providian in a timely manner, we apply the formula set forth in section 546(a) of the Bankruptcy Code to the facts at hand. Burbach filed his petition on November 2, 2000, and the order for relief was entered that same day. In accordance with section 546(a)(1)(A), the period of two years after the entry of the order for relief expires on November 2, 2002. The Chapter 7 Trustee was appointed on November 2, 2000; therefore the alternate period enumerated in section 546(a)(1)(B) of one year after the appointment of the first trustee expires on November 1, 2001. The later of these two dates is November 2, 2002.
In accordance with section 546(a)(2), the time for commencing an avoidance action expired when the case was closed on February 21, 2001. Although February 21, 2001, is earlier than November 2, 2002, the case was reopened on May 3, 2001. A reopening of a case serves to reopen the limitations period. See Price v. Manufacturers and Traders Trust Co. (In re Price), 260 B.R. 653, 656 (Bankr. W.D.N.Y. 2001). Accordingly, the time to initiate an avoidance action pursuant to section 547 has not expired under section 546(a).
Returning now to the elements essential to the recovery of the wages as a preference, the court concludes from the facts that each of the enumerated elements has been met. Accordingly, the garnishment by Providian National Bank of Cletus Francis Burbach's wages within ninety days of the tiling of the bankruptcy petition constitutes a recoverable preferential transfer. Consistent with 11 U.S.C. § 550, Providian National Bank shall return to the debtor, Cletus Francis Burbach, the sum of $2000.00.
JUDGMENT MAY BE ENTERED ACCORDINGLY.