In re Check Reporting Services, Inc.

140 B.R. 425 (1992)

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In re Check Reporting Services, Inc.

United States Bankruptcy Court for the Western District of Michigan
140 B.R. 425 (1992)

Facts

Check Reporting Services, Inc. (CRS) (debtor) processed credit-card payments for merchants including Water Doctor (creditor). When customers made credit-card purchases from Water Doctor, Water Doctor sent sales drafts to CRS. CRS forwarded the sales drafts for bank processing and then sent payments from the bank to Water Doctor, less a processing fee. CRS filed for bankruptcy, and the bankruptcy trustee sought to avoid some of CRS’s payments to Water Doctor as preferential transfers under 11 U.S.C. § 547. Water Doctor asserted a new-value defense under 11 U.S.C. § 547(c)(4). Under that section, a trustee could not avoid a transfer to a creditor to the extent that, after the transfer, the creditor gave the debtor new value. In other words, the defense allowed the creditor to offset the amount of new value against the amount of the preferential transfer to reduce the creditor’s liability. Under § 547(c)(4)(B), the new-value defense was limited to the amount of new value “on account of which . . . the debtor did not make an otherwise unavoidable transfer to or for the benefit of the creditor.” In deciding the extent to which the trustee could avoid the payments to Water Doctor as preferential transfers, the bankruptcy court considered how to interpret § 547(c)(4)(B).

Rule of Law

Issue

Holding and Reasoning (Stevenson, J.)

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