My creditor clients are always in a hurry to get their money.
When a bank levy hits a big account, most judgment creditors go nuts during that 20 day period when the Court Clerk holds garnished funds (per Tenn. Code Ann. § 26-2-407) before disbursement.
Once the funds are paid out, though, I tell my clients to keep their fingers crossed for a bit more time–at least until the end of the Bankruptcy Code’s “preference period.” Until then, a Bankruptcy Trustee can “recover” payments received by creditors in the 90 days before a bankruptcy case is filed.
“One of the most unfair creations of the Bankruptcy Code,” I’ve written on this very creditor-friendly blog.
The question I often get is this: Does the 90 day period start when the Clerk receives the funds or when the Clerk disburses the funds?
An August 19, 2022 Minnesota Bankruptcy Court opinion (In re Holbert, 643 B.R. 332 (Bankr. D. Minn. 2022))(from the Eight Circuit) presents pretty compelling reasoning that the clock starts ticking upon the Clerk’s receipt of the funds.
Specifically, this Court held that the “transfer” (per 11 U.S.C. § 547(b)) for property held in custodia legis occurs when the property is placed in escrow / deposited with the court.
The American Bankruptcy Institute has a more analysis of the case here (and a link to the opinion).
It will always be frustrating for a creditor to see the money just sitting there, in the court coffers, for 20 days. The silver lining, of course, is that the preference clock also appears to be burning off during that period.
Creditors Rights 101 