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Under BAPCPA, an action to avoid a non consumer debt against a noninsider for less then 410.00 must be filed in the district in which the defendant resides, as opposed to the district where the under lying bankruptcy is pending. 28 U.S.C.S 1409(b). The dollar limit to recover consumer debt repayments as a preference has been increased from $5,000 to $15,000. Id.
We have seen increasing reported opinions over the past year and that we expect numerous more in the future giving the increasing insolvency of builders, contractors and suppliers. There are a few distinct concepts from the construction industry payment process as it relates to prosecuting and defending avoidance actions. Typically, the players include the owner of the property at issue, the general contractor, various subcontractors, numerous suppliers and a surety.
Generally, a single payment from an owner trickles down to the dozens of contractors, subcontractors, material suppliers and other parties that have contributed to the construction of the project. This payment may come in the form of a lump sum payment, or more typically, through progress payments. Progress payments may come through direct payments from the owner to the general contractor who then distributes payment to the ultimate recipient subcontractors and suppliers. The owner may also issue a check that is payable to joint payees, usually the general contractor and a specific subcontractor or supplier. Another standard way of dealing with progress payments is for the owner to deposit funds with the project title insurer. The title company then makes a current title examination, review of affidavits, waivers and other formalities required to comply with applicable state law and then make payment to the appropriate recipients.
There may also be direct payments from general contractors to the subs and suppliers or direct payments from the subs to the suppliers. All along the way, there are transfers that could be subject to preference attack. Under section 547, the Trustee (or DIP) may avoid any transfer of an interest of the debtor in property:
to or for the benefit of a creditor;
for or on account of an antecedent debt owed by the debtor before such transfer was
made;
made while the debtor was insolvent;
made -- on or within 90 days before the date of the filing of the petition; or
between ninety days and one year before the date of the filing of the petition if such
