5th circuit says receiver must give $22,000 back as preference

Posted on Sep 03, 2014

Receiverships are a very effective way for a judgment-creditor to collect a judgment, at least in Texas. If you have been served with one, perhaps you know from personal experience. They can empty your bank accounts in a hurry.

In a bankruptcy case, a chapter 7 trustee was trying to avoid the pre-bankruptcy transfer of $18,529.64 to a judgment-creditor as a "preferential transfer" made within 90 days prior to debtor's filing for bankruptcy. Matter of Poston, 5th Ci. 2014

What had happened was a judgment-creditor filed an Application for a Turnover Order and for Appointment of a Receiver pursuant to the Texas Turnover Statute, Tex. Civ. Prac. & Remedies Code Sec. 31.002. This law permits a judge to appoint a receiver with the authority to take possession of a judgment-debtor's non-exempt property, sell it and pay the proceeds to the judgment-creditor in an amount necessary to satisfy the judgment.

The issue in this case was whether $22,000 that the receiver had received from the debtor's bank account, was received on the date that the receiver was appointed (which would be outside the 90 day preference period), or when the bank received a certified copy of the receivership order, which under Sec. 31.002(g), is when the rights of a receiver attach to property held by a financial institution (within the preference period, and subject to being recovered by the bankruptcy trustee).

The bankruptcy court and the district court concluded that the transfer was made when the certified copy was received by the bank, that it was indeed a preferential transfer avoidable by the trustee.

Because the transfer of the bank account occurred less than 90 days before debtor filed for bankruptcy and because the transfer met all the other requirements of a preferential transfer, the court agreed that the transfer was avoidable by the trustee. Accordingly, the court affirmed the judgment of the district court and the judgment-creditor had to return the money to the trustee.

I believe that a chapter 13 debtor could use this same law to recover money taken by a judgment-creditor, at least if it can be claimed as exempt. If not, it still may be able to be recovered if the chapter 13 trustee would join in the action, which we have had them do in the past. But time is critical, only preferential payments that occur within the 90 days before the bankruptcy filing can be recovered.
 

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