In re Wells, (6th Cir.BAP (Mich.)

Avoidance - Debtor's use of credit card convenience checks to pay other credit card debt diminished bankruptcy estate.

A Chapter 7 debtor who used convenience checks that she received from one credit card company to make challenged prepetition payments to another credit card company thereby effected a "transfer of an interest of the debtor in property," of a kind potentially subject to avoidance as preferential, despite a contention that these transactions merely substituted one creditor for another and did not result in any diminution of the estate. The extensions of credit that the debtor obtained by signing the checks could have been used for other purposes, including the purchase of assets which then would have been available for the payment of creditor claims. Thus, the estate was diminished by the debtor's use of the checks to pay this other credit card debt.

Date of decision: 2/13/08

Full opinion

In re E-Z Convenience Stores, INC.

Avoidance - Surety was "creditor" of Chapter 11 debtor at the time of prepetition transfer of collateral.

A surety was a "creditor" of a Chapter 11 debtor at the time of a prepetition transfer of collateral to the surety for purposes of the trustee's preference avoidance claim. The surety was obligated to pay any claims made by obligees under the bonds as the debtor's surety, and the debtor was in turn obligated to indemnify the surety for any such payments. Thus, the surety had a contingent claim against the debtor for reimbursement that became fixed if, and when, a claim was made against a bond.