Parks v. FIA Card Services, N.A. (In re Marshall)

Bryan and Julie Marshall (debtors) had two credit card accounts with MBNA Corporation, successor in interest to FIA Card Services, N.A. (MBNA), and two credit card accounts with Capital One. In 2005, the Marshalls filed for Chapter 7 bankruptcy. During the 90 days before their bankruptcy filing, the Marshalls directed Capital One to transfer their Capital One account balances totaling $38,000 to their MBNA accounts. After the bankruptcy filing, bankruptcy trustee Linda Parks sought to recover the $38,000 as preferential transfers. The bankruptcy court concluded that the payments to MBNA were not preferential transfers under 11 U.S.C. § 547(b) because they were not transfers “of an interest of the debtor in property.” The bankruptcy court found instead that the Marshalls had merely substituted one creditor for another. The district court affirmed after analyzing the case under the earmarking doctrine, which provides that in some circumstances, a debtor’s use of borrowed funds for the purpose of paying a specific debt is exempt from the bankruptcy trustee’s power to avoid transfers. The court found that (1) the Marshalls lacked sufficient control over the payments to MBNA for the payments to constitute property interests of the Marshalls, and (2) the bankruptcy estate had not been diminished by the payments to MBNA. Parks appealed.