In re Tenderloin Health

Bankruptcy trustee may recoup debtor’s mortgage payoff to lender, which was made less than 90 days before filing bankruptcy.  Tenderloin sold its real property, repaying Bank of the West $190,000 on a loan that was secured by that property and depositing a remaining sum of $526,000 in its Bank of the West checking account.  Then, within 90 days, Tenderloin filed a bankruptcy petition.  Held, the bankruptcy trustee may recoup the $190,000 debt payment because in a hypothetical Chapter 7, the trustee would have been able to recoup that sum as a preference and the total distribution to Bank of the West would have been less than the $190,000 amount it received.  The bankruptcy court erred in holding that Bank of the West would, in the hypothetical Chapter 7 have recouped the entire $190,000 payment by set off against the $526,000 balance in Tenderloin’s account since the transfer of those funds into the account were also a preference to the extent the deposit increased Bank of the West’s rights to payment.

Ninth Circuit Court of Appeals (Smith, M., J.; Korman, J., concurring); March 7, 2017; 2017 WL 894461

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