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creditors in bankruptcy the rights of an aggressive lien creditor outside of bankruptcy.
II. PREFERENTIAL TRANSFERS.
When a court determines whether a transfer is preferential, the focus is on the effect which the transfer has on the debtor's estate and not the state of mind of the debtor or the creditor. Casarow v. Chomenko (In re Cobb), 231 B.R. 236 (Bankr. D.N.J. 1999).
However, Judge Lundin stated that:
"Looking only at the 'trees' and parsing each component of the refinancing, it is easy to conclude that the transfer allowed CCC to receive more than it would receive in a Chapter 7 case. . . . Viewed in this narrow light, perfection of the new lien enabled CCC to realize a greater share of the estate."
However, in transactions that involve collateral substitution or renewal of a lien or security interest many courts have measured the transaction as a whole to determine whether the estate was diminished.
Gregory v. Cnty. Credit Corp. (In re Biggers), 249 B.R. 873, 877 (Bankr. M.D. Tenn. 2000).
The court in Houchens v. U.S. Dept. of Agric. Rural Dev. (In re Houchens), 384 B.R. 472 (Bankr. W.D. Ky. 2008) indicated that in some circumstances, a setoff might be a preferential transfer, but in this case held that the setoff of the Debtors' tax refund against their USDA mortgage ddi not diminish the estate and thus was not preferential.
B. Transfer Requirement.
The word "transfer" is broadly defined in 11 U.S.C. S 101(54) to mean "each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with --(i) property, or (ii) an interest in property."
What constitutes a "transfer" and when it is complete is a matter of federal law. Barnhill
v. Johnson, 503 U.S. 393, 112 S. Ct. 1386, 118 L. Ed. 2d 39 (1992). The interaction of state law and federal law is both complex and crucial in the resolution of avoidance issues. For an interesting case dealing with the definition, see O'Neill v. Dell (In re O'Neill), 204 B.R. 881 (Bankr. E.D. Pa. 1997), which examines the deposit of funds into an escrow account. A state court's prepetition decree identifying certain parties as
