Opinion ID: 490978
Heading Depth: 1
Heading Rank: 2

Heading: The Lien and the Preference Period

Text: 6 The trustee in bankruptcy asserts that MBank's lien was perfected within 90 days of the date the Debtor filed for bankruptcy, and is therefore subject to a preferential set aside by the trustee. 11 U.S.C. Sec. 547. 2 The trustee asserts that the lien was not perfected until the Declaratory Judgment and Judgment in Garnishment were entered stating the trust assets were subject to the lien. That occurred only 35 days before the petition in bankruptcy was filed. MBank asserts its lien attached when the Writ of Garnishment was issued and served on August 28, 1985, eight months before the petition was filed. 7 The perfection of a lien by garnishment is determined by the law of the state where the garnishment took place. In Re M.D.F., Inc., 39 B.R. 16 (Bkrtcy.1984). According to Texas case law, a garnishment lien attaches from the date of service of the summons. United States v. Standard Brass & Manufacturing Co., 266 S.W.2d 407, 408 (Civ.App.1954). 8 The trustee argues that because the trust was irrevocable, Texas National held legal title to the trust assets 3 and the Debtor had no right to those assets until the time of the Declaratory Judgment and Judgment in Garnishment. The trustee asserts the judgments operated as a transfer of rights to the Debtor, a transfer that occurred during the preference period. Under 11 U.S.C. Sec. 547(e)(3) a lien that is perfected outside the preference period does not attach to property rights transferred to the Debtor during the preference period. 4 See Tabita v. Internal Revenue Service, 38 B.R. 511, 513 (E.D.Pa.1984) (wages earned within preference period are subject to preference even though writ of attachment was served beyond the preference period); Eggleston v. First National Bank in Nashville, 19 B.R. 280 (M.D.Tn 1982). 9 The trustee errs in viewing the judgments as a transfer of rights. The judgments merely verified that the lien was valid and did indeed attach to the trust assets when the Writ of Garnishment was served. Under Texas law a spendthrift clause is void when the settlor of a trust establishes the trust for her own benefit. Bank of Dallas v. Republic National Bank of Dallas, 540 S.W.2d 499 (Tex.Civ.App.--Waco 1976). A creditor can reach the trust assets by garnishment. Tex. Property Code Sec. 112.035(d) (1984); In re Goff, 812 F.2d 931, 933 (5th Cir.1987). Therefore, any transfer of property rights to the Debtor must have occurred when the Writ of Garnishment was served, an event outside the preference period. MBank was entitled to full payment of its lien.