Court Opinion

ID: 9702187
Source: CourtListenerOpinion
Date Created: 2023-08-25 22:58:49.144703+00
Date Added: 2024-06-11T18:21:34.681801
License: Public Domain

JAMES D. GREGG, Bankruptcy Judge,
concurring.
I fully agree with the Panel’s decision that a so-called “payday lender” creditor who retains funds from a postdated check which is presented and honored postpetition does not violate the automatic stay because of the limited exception in § 362(b)(ll). I also agree that the transfer to Buckeye, the appellant payday lender,8 is avoidable under § 549(a) and recoverable under § 550(a). I write separately to further address the issue of “who gets the money” from the recovery.
Bankruptcy court decisions in this circuit have long held that a chapter 13 debt- or lacks standing to pursue avoidance and recovery of transfers; only the trustee normally possesses the requisite standing. Hill v. Fidelity Fin. Servs. (In re Hill), 152 B.R. 204 (Bankr.S.D.Ohio 1993); Mast v. Borgess Med. Ctr. (In re Mast), 79 B.R. 981 (Bankr.W.D.Mich.1987). However, it is properly recognized that, under certain circumstances, the Bankruptcy Code permits a debtor to avoid transfers under § 522(g)(1) and (h). In re Hill, 152 B.R. *499at 207; In re Mast, 79 B.R. at 982 n. 4. Although some courts have permitted a chapter 13 debtor standing to exercise a trustee’s general avoidance powers, such standing is based upon practicalities and policy considerations. See Dianne K. Rud-man, What Power Does and Should the Chapter IS Debtor Have to Avoid Liens & Transfers?, 37 Gonz. L.Rev. 513 (2001/2002). “The general rule stems from a strict reading of the Code: the Chapter 13 debtor lacks a statutory grant of authority to exercise the Chapter 5 avoidance powers.” Id. at 523. It is noted, however, that “a considerable number of decisions have granted full use of the trustee avoidance powers to the Chapter 13 debtor without articulating the basis for doing so.” Id. at 526.
The Ninth Circuit Court of Appeals has listed the necessary elements for a debtor to avoid a transfer under § 522(h). DeMarah v. United States (In re DeMarah), 62 F.3d 1248, 1250 (9th Cir.1995). A chapter 13 debtor may exercise the general avoidance power if: (1) the transfer was involuntary; (2) the debtor did not conceal the property; (3) the trustee did not seek avoidance; (4) the debtor requests avoidance under § 522(h); and (5) the transferred property could have been exempted by the debtor if the trustee had avoided the transfer. Id.
A key question in this appeal is whether the transfer was involuntarily made by the Debtor. Before the filing, the Debtor gave a $460 postdated check to Buckeye. One can easily see that the delivery of the check was voluntary. However, Buckeye presented the check on April 23, 2006. As explained in the Panel’s opinion, the transfer took place as a result of Buckeye’s presentment and the bank’s honor of the check. Barnhill v. Johnson, 503 U.S. 393, 400, 112 S.Ct. 1386, 1390, 118 L.Ed.2d 39 (1992) (transfer occurs on date check is honored). Although it might seem coun-terintuitive, as a matter of law, this is a creditor-initiated involuntary transfer under § 101(54)(D).9
The record on appeal shows no evidence whatsoever that the Debtor concealed the property or that the chapter 13 trustee sought to avoid the transfer. Also, although the Debtor did not explicitly rely upon § 522(h) to seek avoidance, the Debt- or sought to avoid and recover the transfer.
The final element to be demonstrated is the most problematic. The Debtor must show that the property is exempt, or could have been exempted. In this appeal, the record is silent. However, Buckeye has constantly stated, including at the oral argument before this Panel, that it is willing to return the funds (but not pay attorney’s fees) to the Debtor. Settlements in bankruptcy cases are favored by law. In re Cormier, 382 B.R. 377, 400-01 (Bankr.W.D.Mich.2008). Given Buckeye’s offer to return the funds and the Debtor’s desire to obtain them, this judge believes this is tantamount to a reasonable settlement. Circling back to the initial question posed, the answer is “the Debtor gets the money.”10 I join in the Panel’s opinion and separately concur as well.

. "The $85 billion payday industry provides short-term loans, usually secured with a check postdated to the borrower’s next payday, with an interest rate that works out to an average of $15 per $100 borrowed on a two-week loan.” Easha Anand, Payday Lenders Back Measures to Unwind State Restrictions, Wall St. J., Oct. 28, 2008, at A6. In Ohio and Arizona, "payday-lending branches outnumber Starbucks and McDonald's outlets combined.” Id. Currently, payday lending is legally barred in fifteen states. Id.

. This analysis is similar to that utilized when a debtor voluntarily delivers a mortgage pre-petition and the mortgagee forecloses its interest, thereby obtaining title, postpetition. Although the debtor voluntarily gave the mortgage interest, the act of foreclosure is creditor-initiated and therefore must be categorized as an involuntary transfer.

. This will not necessarily be the result in all cases like this one. To obtain the funds, a *500debtor must allege and be prepared to prove all elements under § 522(h). If a payday lender receives notification of a bankruptcy filing, and a demand to return the postpetition transfer, it would be wise to comply. If uncertain as to whom is entitled to the funds, it may return the funds to the trustee with instructions that they should be paid to the debtor or the estate, depending upon whether the funds are exemptible. The debtor and the trustee may settle the matter of “who gets the money;” if they are unable to do so, the bankruptcy court will decide.