Dilworth v. MBNA, 560 F.3d 562 (6th Cir. 2009)

  In Dilworth v. MBNA, MBNA appealed the Bankruptcy Court’s and Bankruptcy Appellate Panel’s rulings that balance transfers it received within 90 days before the debtor filed for bankruptcy were avoidable under Bankruptcy Code section 547. The United States Court of Appeals for the Sixth Circuit affirmed the ruling of the lower courts.

 On August 22, 2005, Jeannette Dilworth used a balance transfer check drawn on her CitiPlatinum Select Card to pay her MBNA credit card balance of $10,500. She filed for bankruptcy 53 days later. The trustee filed a complaint to avoid the balance transfer as preferential pursuant to Bankruptcy Code section 547. Bankruptcy Code section 547 states that “the trustee may avoid any transfer of an interest of the debtor in property… made… on or within 90 days before the date of the filing of the petition…” The Bankruptcy Court granted summary judgment in favor of the trustee and the Bankruptcy Appellate

Panel affirmed.

 MBNA appealed, contending that the transfer was not one “of an interest of the debtor in property” because the transfer did not diminish the debtor’s assets. MBNA argued that the debtor simply used the balance transfer check to substitute one creditor for another and therefore it did not diminish the estate. The Court, like the bankruptcy court, cited Hartley v. Peoples Banking Company (In re Hartley), 825 F.2d 1067 (6th Cir. 1987), which held that the determinative factor in considering what constitutes property of the estate is the degree of control exercised by the debtor over the distribution of funds. In the instant action, the Court found that Dilworth had complete control in deciding to whom the Citi funds would be paid by way of a balance  transfer check, and thus, the funds were property of Dilworth’s estate and the transfer was avoidable.

 Commentary: The holding in Dilworth is consistent with recent court decisions that held that credit card balance transfers, or similar transfers, were avoidable. For example, in MBNA America Bank, N.A. v. Meoli (In re Wells), 561 F.3d 633 (6th Cir. 2009), the Court of Appeals for the Sixth Circuit held that payment by convenience check (checks issued by a credit card company) to pay the balance of another credit card was an avoidable preferential transfer. Similarly, in Marshall v. FIA Card Services, N.A. (In re Bryan K. Marshall), 550 F.3d 1251 (10^th Cir. 2008), which was summarized in the March  2009 issue of the Avoidance Action Report, the Court of Appeals for the Tenth Circuit held that credit card balance transfers made within 90 days prior to the debtor’s bankruptcy filing were avoidable.