2.23.2007

N.D. Tex. Bankruptcy Court Notes Split Re Meaning of "Transfer" in Section 727(a)(2) of the Bankruptcy Code

Per In re Schumann, Not Reported in B.R., 2005 WL 3465624 (Bkrtcy. N.D.Tex. Jan. 03, 2005):

11 U.S.C. § 727(a)(2) does not define “transfer.” Rather, the Court must look to the general definition, contained in section 101:

“transfer” means every mode, direct, or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor's equity of redemption.

11 U.S.C. § 101(54). Simple statutory construction leads to the conclusion that Congress did not intend that this Court interpret section 727 in the same manner as it would section 548. Had Congress desired to give these two provisions identical treatment as to the issue of the treatment of the term “transfer,” it merely had to repeat its previous definition in section 548 in section 727. Congress failed to do so, however, and instead left the decision to the courts. Roosevelt, 87 F.3d at 316.

The deference shown by Congress resulted in split rulings between circuit courts concerning whether a debtor should be denied a discharge if the transfer itself was made before, but the record of the transfer was made within, the statutory period. 6 Collier on Bankruptcy ¶ 727.02[2][c] (15th ed. rev.2004). One theory, adopted by the Third Circuit, holds that the date of recordation, rather than the date of the deed, is the proper point to measure whether the transfer occurred within one year prior to bankruptcy. Dean Witter Reynolds, Inc. v. MacQuown ( In re MacQuown ) 717 F.2d 859 (3d Cir.1983). The second theory, urged by Defendant, “deems a transfer ‘made’ for the purposes of § 727(a)(2) once it is effective between the parties to the transfer, whether or not it is valid against bona fide purchasers.” Roosevelt, 87 F.3d at 318. The Fifth Circuit has not yet addressed the issue.

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