• Certain Deposits Not an Avoidable "Transfer" in Bankruptcy
  • April 18, 2017 | Author: Lawrence D. Coppel
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • Under §101(54) of the Bankruptcy Code, a "transfer" includes any "mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with ... (i) property; or (ii) an interest in property." The definition is important because only a "transfer" of a debtor's interest in property can be avoided by a bankruptcy trustee as a fraudulent transfer or preference. While a deposit in a bank account may literally be a mode of "parting with" property, the United States Court of Appeals for the 4th Circuit recently held that a deposit into an unrestricted bank account is not a "transfer" under the Bankruptcy Code and thus rejected a trustee's fraudulent transfer claim against a bank. Disregarding contrary authority from other jurisdictions, the court ruled that "when a debtor deposits or receives a wire transfer of funds into his own unrestricted checking account in the regular course of business, he has not transferred those funds to the bank that operates the account. When the debtor is still free to access those funds at will, the requisite 'disposing of' or 'parting with' property has not occurred; there has not been a 'transfer' within the meaning of §101(54)." The court also noted that it expressed no opinion as to whether other types of deposits, such as deposits to restricted accounts, would constitute transfers under the Bankruptcy Code. Please contact Lawrence Coppel with questions about this topic.