(a) In this section--
        (1) ``inventory'' means personal property leased or furnished, 
    held for sale or lease, or to be furnished under a contract for 
    service, raw materials, work in process, or materials used or 
    consumed in a business, including farm products such as crops or 
    livestock, held for sale or lease;
        (2) ``new value'' means money or money's worth in goods, 
    services, or new credit, or release by a transferee of property 
    previously transferred to such transferee in a transaction that is 
    neither void nor voidable by the debtor or the trustee under any 
    applicable law, including proceeds of such property, but does not 
    include an obligation substituted for an existing obligation;
        (3) ``receivable'' means right to payment, whether or not such 
    right has been earned by performance; and
        (4) a debt for a tax is incurred on the day when such tax is 
    last payable without penalty, including any extension.

    (b) Except as provided in subsection (c) of this section, the 
trustee may avoid any transfer of an interest of the debtor in 
property--
        (1) to or for the benefit of a creditor;
        (2) for or on account of an antecedent debt owed by the debtor 
    before such transfer was made;
        (3) made while the debtor was insolvent;
        (4) made--
            (A) on or within 90 days before the date of the filing of 
        the petition; or
            (B) between ninety days and one year before the date of the 
        filing of the petition, if such creditor at the time of such 
        transfer was an insider; and

        (5) that enables such creditor to receive more than such 
    creditor would receive if--
            (A) the case were a case under chapter 7 of this title;
            (B) the transfer had not been made; and
            (C) such creditor received payment of such debt to the 
        extent provided by the provisions of this title.

    (c) The trustee may not avoid under this section a transfer--
        (1) to the extent that such transfer was--
            (A) intended by the debtor and the creditor to or for whose 
        benefit such transfer was made to be a contemporaneous exchange 
        for new value given to the debtor; and
            (B) in fact a substantially contemporaneous exchange;

        (2) to the extent that such transfer was--
            (A) in payment of a debt incurred by the debtor in the 
        ordinary course of business or financial affairs of the debtor 
        and the transferee;
            (B) made in the ordinary course of business or financial 
        affairs of the debtor and the transferee; and
            (C) made according to ordinary business terms;

        (3) that creates a security interest in property acquired by the 
    debtor--
            (A) to the extent such security interest secures new value 
        that was--
                (i) given at or after the signing of a security 
            agreement that contains a description of such property as 
            collateral;
                (ii) given by or on behalf of the secured party under 
            such agreement;
                (iii) given to enable the debtor to acquire such 
            property; and
                (iv) in fact used by the debtor to acquire such 
            property; and

            (B) that is perfected on or before 20 days after the debtor 
        receives possession of such property;

        (4) to or for the benefit of a creditor, to the extent that, 
    after such transfer, such creditor gave new value to or for the 
    benefit of the debtor--
            (A) not secured by an otherwise unavoidable security 
        interest; and
            (B) on account of which new value the debtor did not make an 
        otherwise unavoidable transfer to or for the benefit of such 
        creditor;

        (5) that creates a perfected security interest in inventory or a 
    receivable or the proceeds of either, except to the extent that the 
    aggregate of all such transfers to the transferee caused a 
    reduction, as of the date of the filing of the petition and to the 
    prejudice of other creditors holding unsecured claims, of any amount 
    by which the debt secured by such security interest exceeded the 
    value of all security interests for such debt on the later of--
            (A)(i) with respect to a transfer to which subsection 
        (b)(4)(A) of this section applies, 90 days before the date of 
        the filing of the petition; or
            (ii) with respect to a transfer to which subsection 
        (b)(4)(B) of this section applies, one year before the date of 
        the filing of the petition; or
            (B) the date on which new value was first given under the 
        security agreement creating such security interest;

        (6) that is the fixing of a statutory lien that is not avoidable 
    under section 545 of this title;
        (7) to the extent such transfer was a bona fide payment of a 
    debt to a spouse, former spouse, or child of the debtor, for alimony 
    to, maintenance for, or support of such spouse or child, in 
    connection with a separation agreement, divorce decree or other 
    order of a court of record, determination made in accordance with 
    State or territorial law by a governmental unit, or property 
    settlement agreement, but not to the extent that such debt--
            (A) is assigned to another entity, voluntarily, by operation 
        of law, or otherwise; or
            (B) includes a liability designated as alimony, maintenance, 
        or support, unless such liability is actually in the nature of 
        alimony, maintenance or support; or

        (8) if, in a case filed by an individual debtor whose debts are 
    primarily consumer debts, the aggregate value of all property that 
    constitutes or is affected by such transfer is less than $600.

    (d) The trustee may avoid a transfer of an interest in property of 
the debtor transferred to or for the benefit of a surety to secure 
reimbursement of such a surety that furnished a bond or other obligation 
to dissolve a judicial lien that would have been avoidable by the 
trustee under subsection (b) of this section. The liability of such 
surety under such bond or obligation shall be discharged to the extent 
of the value of such property recovered by the trustee or the amount 
paid to the trustee.
    (e)(1) For the purposes of this section--
        (A) a transfer of real property other than fixtures, but 
    including the interest of a seller or purchaser under a contract for 
    the sale of real property, is perfected when a bona fide purchaser 
    of such property from the debtor against whom applicable law permits 
    such transfer to be perfected cannot acquire an interest that is 
    superior to the interest of the transferee; and
        (B) a transfer of a fixture or property other than real property 
    is perfected when a creditor on a simple contract cannot acquire a 
    judicial lien that is superior to the interest of the transferee.

    (2) For the purposes of this section, except as provided in 
paragraph (3) of this subsection, a transfer is made--
        (A) at the time such transfer takes effect between the 
    transferor and the transferee, if such transfer is perfected at, or 
    within 10 days after, such time, except as provided in subsection 
    (c)(3)(B);
        (B) at the time such transfer is perfected, if such transfer is 
    perfected after such 10 days; or
        (C) immediately before the date of the filing of the petition, 
    if such transfer is not perfected at the later of--
            (i) the commencement of the case; or
            (ii) 10 days after such transfer takes effect between the 
        transferor and the transferee.

    (3) For the purposes of this section, a transfer is not made until 
the debtor has acquired rights in the property transferred.
    (f) For the purposes of this section, the debtor is presumed to have 
been insolvent on and during the 90 days immediately preceding the date 
of the filing of the petition.
    (g) For the purposes of this section, the trustee has the burden of 
proving the avoidability of a transfer under subsection (b) of this 
section, and the creditor or party in interest against whom recovery or 
avoidance is sought has the burden of proving the nonavoidability of a 
transfer under subsection (c) of this section.

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2597; Pub. L. 98-353, title III, 
Secs. 310, 462, July 10, 1984, 98 Stat. 355, 377; Pub. L. 99-554, title 
II, Sec. 283(m), Oct. 27, 1986, 100 Stat. 3117; Pub. L. 103-394, title 
II, Sec. 203, title III, Sec. 304(f), Oct. 22, 1994, 108 Stat. 4121, 
4133.)


                      Historical and Revision Notes

                         legislative statements

    No limitation is provided for payments to commodity brokers as in 
section 766 of the Senate amendment other than the amendment to section 
548 of title 11. Section 547(c)(2) protects most payments.
    Section 547(b)(2) of the House amendment adopts a provision 
contained in the House bill and rejects an alternative contained in the 
Senate amendment relating to the avoidance of a preferential transfer 
that is payment of a tax claim owing to a governmental unit. As 
provided, section 106(c) of the House amendment overrules contrary 
language in the House report with the result that the Government is 
subject to avoidance of preferential transfers.
    Contrary to language contained in the House report, payment of a 
debt by means of a check is equivalent to a cash payment, unless the 
check is dishonored. Payment is considered to be made when the check is 
delivered for purposes of sections 547(c)(1) and (2).
    Section 547(c)(6) of the House bill is deleted and is treated in a 
different fashion in section 553 of the House amendment.
    Section 547(c)(6) represents a modification of a similar provision 
contained in the House bill and Senate amendment. The exception relating 
to satisfaction of a statutory lien is deleted. The exception for a lien 
created under title 11 is deleted since such a lien is a statutory lien 
that will not be avoidable in a subsequent bankruptcy.
    Section 547(e)(1)(B) is adopted from the House bill and Senate 
amendment without change. It is intended that the simple contract test 
used in this section will be applied as under section 544(a)(1) not to 
require a creditor to perfect against a creditor on a simple contract in 
the event applicable law makes such perfection impossible. For example, 
a purchaser from a debtor at an improperly noticed bulk sale may take 
subject to the rights of a creditor on a simple contract of the debtor 
for 1 year after the bulk sale. Since the purchaser cannot perfect 
against such a creditor on a simple contract, he should not be held 
responsible for failing to do the impossible. In the event the debtor 
goes into bankruptcy within a short time after the bulk sale, the 
trustee should not be able to use the avoiding powers under section 
544(a)(1) or 547 merely because State law has made some transfers of 
personal property subject to the rights of a creditor on a simple 
contract to acquire a judicial lien with no opportunity to perfect 
against such a creditor.
    Preferences: The House amendment deletes from the category of 
transfers on account of antecedent debts which may be avoided under the 
preference rules, section 547(b)(2), the exception in the Senate 
amendment for taxes owed to governmental authorities. However, for 
purposes of the ``ordinary course'' exception to the preference rules 
contained in section 547(c)(2), the House amendment specifies that the 
45-day period referred to in section 547(c)(2)(B) is to begin running, 
in the case of taxes from the last due date, including extensions, of 
the return with respect to which the tax payment was made.


                        senate report no. 95-989

    This section is a substantial modification of present law. It 
modernizes the preference provisions and brings them more into 
conformity with commercial practice and the Uniform Commercial Code.
    Subsection (a) contains three definitions. Inventory, new value, and 
receivable are defined in their ordinary senses, but are defined to 
avoid any confusion or uncertainty surrounding the terms.
    Subsection (b) is the operative provision of the section. It 
authorizes the trustee to avoid a transfer if five conditions are met. 
These are the five elements of a preference action. First, the transfer 
must be to or for the benefit of a creditor. Second, the transfer must 
be for or on account of an antecedent debt owed by the debtor before the 
transfer was made. Third, the transfer must have been made when the 
debtor was insolvent. Fourth, the transfer must have been made during 
the 90 days immediately preceding the commencement of the case. If the 
transfer was to an insider, the trustee may avoid the transfer if it was 
made during the period that begins one year before the filing of the 
petition and ends 90 days before the filing, if the insider to whom the 
transfer was made had reasonable cause to believe the debtor was 
insolvent at the time the transfer was made.
    Finally, the transfer must enable the creditor to whom or for whose 
benefit it was made to receive a greater percentage of his claim than he 
would receive under the distributive provisions of the bankruptcy code. 
Specifically, the creditor must receive more than he would if the case 
were a liquidation case, if the transfer had not been made, and if the 
creditor received payment of the debt to the extent provided by the 
provisions of the code.
    The phrasing of the final element changes the application of the 
greater percentage test from that employed under current law. Under this 
language, the court must focus on the relative distribution between 
classes as well as the amount that will be received by the members of 
the class of which the creditor is a member. The language also requires 
the court to focus on the allowability of the claim for which the 
preference was made. If the claim would have been entirely disallowed, 
for example, then the test of paragraph (5) will be met, because the 
creditor would have received nothing under the distributive provisions 
of the bankruptcy code.
    The trustee may avoid a transfer of a lien under this section even 
if the lien has been enforced by sale before the commencement of the 
case,
    Subsection (b)(2) of this section in effect exempts from the 
preference rules payments by the debtor of tax liabilities, regardless 
of their priority status.
    Subsection (c) contains exceptions to the trustee's avoiding power. 
If a creditor can qualify under any one of the exceptions, then he is 
protected to that extent. If he can qualify under several, he is 
protected by each to the extent that he can qualify under each.
    The first exception is for a transfer that was intended by all 
parties to be a contemporaneous exchange for new value, and was in fact 
substantially contemporaneous. Normally, a check is a credit 
transaction. However, for the purposes of this paragraph, a transfer 
involving a check is considered to be ``intended to be 
contemporaneous'', and if the check is presented for payment in the 
normal course of affairs, which the Uniform Commercial Code specifies as 
30 days, U.C.C. Sec. 3-503(2)(a), that will amount to a transfer that is 
``in fact substantially contemporaneous.''
    The second exception protects transfers in the ordinary course of 
business (or of financial affairs, where a business is not involved) 
transfers. For the case of a consumer, the paragraph uses the phrase 
``financial affairs'' to include such nonbusiness activities as payment 
of monthly utility bills. If the debt on account of which the transfer 
was made was incurred in the ordinary course of both the debtor and the 
transferee, if the transfer was made not later than 45 days after the 
debt was incurred, if the transfer itself was made in the ordinary 
course of both the debtor and the transferee, and if the transfer was 
made according to ordinary business terms, then the transfer is 
protected. The purpose of this exception is to leave undisturbed normal 
financial relations, because it does not detract from the general policy 
of the preference section to discourage unusual action by either the 
debtor or his creditors during the debtor's slide into bankruptcy.
    The third exception is for enabling loans in connection with which 
the debtor acquires the property that the loan enabled him to purchase 
after the loan is actually made.
    The fourth exception codifies the net result rule in section 60c of 
current law [section 96(c) of former title 11]. If the creditor and the 
debtor have more than one exchange during the 90-day period, the 
exchanges are netted out according to the formula in paragraph (4). Any 
new value that the creditor advances must be unsecured in order for it 
to qualify under this exception.
    Paragraph (5) codifies the improvement in position test, and thereby 
overrules such cases as DuBay v. Williams, 417 F.2d 1277 (C.A.9, 1966), 
and Grain Merchants of Indiana, Inc. v. Union Bank and Savings Co., 408 
F.2d 209 (C.A.7, 1969). A creditor with a security interest in a 
floating mass, such as inventory or accounts receivable, is subject to 
preference attack to the extent he improves his position during the 90-
day period before bankruptcy. The test is a two-point test, and requires 
determination of the secured creditor's position 90 days before the 
petition and on the date of the petition. If new value was first given 
after 90 days before the case, the date on which it was first given 
substitutes for the 90-day point.
    Paragraph (6) excepts statutory liens validated under section 545 
from preference attack. It also protects transfers in satisfaction of 
such liens, and the fixing of a lien under section 365(j), which 
protects a vendee whose contract to purchase real property from the 
debtor is rejected.
    Subsection (d), derived from section 67a of the Bankruptcy Act 
[section 107(a) of former title 11], permits the trustee to avoid a 
transfer to reimburse a surety that posts a bond to dissolve a judicial 
lien that would have been avoidable under this section. The second 
sentence protects the surety from double liability.
    Subsection (e) determines when a transfer is made for the purposes 
of the preference section. Paragraph (1) defines when a transfer is 
perfected. For real property, a transfer is perfected when it is valid 
against a bona fide purchaser. For personal property and fixtures, a 
transfer is perfected when it is valid against a creditor on a simple 
contract that obtains a judicial lien after the transfer is perfected. 
``Simple contract'' as used here is derived from Bankruptcy Act 
Sec. 60a(4) [section 96(a)(4) of former title 11]. Paragraph (2) 
specifies that a transfer is made when it takes effect between the 
transferor and the transferee if it is perfected at or within 10 days 
after that time. Otherwise, it is made when the transfer is perfected. 
If it is not perfected before the commencement of the case, it is made 
immediately before the commencement of the case. Paragraph (3) specifies 
that a transfer is not made until the debtor has acquired rights in the 
property transferred. This provision, more than any other in the 
section, overrules DuBay and Grain Merchants, and in combination with 
subsection (b)(2), overrules In re King-Porter Co., 446 F.2d 722 (5th 
Cir. 1971).
    Subsection (e) is designed to reach the different results under the 
1962 version of Article 9 of the U.C.C. and under the 1972 version 
because different actions are required under each version in order to 
make a security agreement effective between the parties.
    Subsection (f) creates a presumption of insolvency for the 90 days 
preceding the bankruptcy case. The presumption is as defined in Rule 301 
of the Federal Rules of Evidence, made applicable in bankruptcy cases by 
sections 224 and 225 of the bill. The presumption requires the party 
against whom the presumption exists to come forward with some evidence 
to rebut the presumption, but the burden of proof remains on the party 
in whose favor the presumption exists.


                               Amendments

    1994--Subsec. (c)(3)(B). Pub. L. 103-394, Sec. 203(1), substituted 
``20'' for ``10''.
    Subsec. (c)(7), (8). Pub. L. 103-394, Sec. 304(f), added par. (7) 
and redesignated former par. (7) as (8).
    Subsec. (e)(2)(A). Pub. L. 103-394, Sec. 203(2), inserted before 
semicolon at end ``, except as provided in subsection (c)(3)(B)''.
    1986--Subsec. (b)(4)(B). Pub. L. 99-554 inserted ``and'' after the 
semicolon.
    1984--Subsec. (a)(2). Pub. L. 98-353, Sec. 462(a)(1), inserted 
``including proceeds of such property,'' after ``law,''.
    Subsec. (a)(4). Pub. L. 98-353, Sec. 462(a)(2), struck out ``, 
without penalty'' after ``any extension'', and inserted ``without 
penalty'' after ``payable''.
    Subsec. (b). Pub. L. 98-353, Sec. 462(b)(1), substituted ``of an 
interest of the debtor in property'' for ``of property of the debtor'' 
in provisions preceding par. (1).
    Subsec. (b)(4)(B). Pub. L. 98-353, Sec. 462(b)(2), amended subpar. 
(B) generally. Prior to amendment, subpar. (B) read as follows: 
``between 90 days and one year before the date of the filing of the 
petition, if such creditor, at the time of such transfer--
        ``(i) was an insider; and
        ``(ii) had reasonable cause to believe the debtor was insolvent 
    at the time of such transfer; and''.
    Subsec. (c)(2)(A). Pub. L. 98-353, Sec. 462(d)(1), inserted ``by the 
debtor'' after ``incurred''.
    Subsec. (c)(2)(B) to (D). Pub. L. 98-353, Sec. 462(c), struck out 
subpar. (B) which read as follows: ``made not later than 45 days after 
such debt was incurred;'' and redesignated subpars. (C) and (D) as (B) 
and (C), respectively.
    Subsec. (c)(3). Pub. L. 98-353, Sec. 462(d)(2), substituted ``that 
creates'' for ``of''.
    Subsec. (c)(3)(B). Pub. L. 98-353, Sec. 462(d)(3), inserted ``on 
or'' after ``perfected'', and substituted ``the debtor receives 
possession of such property'' for ``such security interest attaches''.
    Subsec. (c)(5). Pub. L. 98-353, Sec. 462(d)(4), substituted ``that 
creates'' for ``of'', and ``all security interests'' for ``all security 
interest''.
    Subsec. (c)(5)(A)(ii). Pub. L. 98-353, Sec. 462(d)(5), substituted 
``or'' for ``and''.
    Subsec. (c)(7). Pub. L. 98-353, Sec. 310(3), added par. (7).
    Subsec. (d). Pub. L. 98-353, Sec. 462(e), substituted ``The'' for 
``A'' before ``trustee may avoid'', inserted ``an interest in'' after 
``transfer of'', inserted ``to or for the benefit of a surety'' after 
``transferred'', and inserted ``such'' after ``reimbursement of''.
    Subsec. (e)(2)(C)(i). Pub. L. 98-353, Sec. 462(f), substituted 
``or'' for ``and''.
    Subsec. (g). Pub. L. 98-353, Sec. 462(g), added subsec. (g).


                    Effective Date of 1994 Amendment

    Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not 
applicable with respect to cases commenced under this title before Oct. 
22, 1994, see section 702 of Pub. L. 103-394, set out as a note under 
section 101 of this title.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, 
see section 302(a) of Pub. L. 99-554, set out as a note under section 
581 of Title 28, Judiciary and Judicial Procedure.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-353 effective with respect to cases filed 90 
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out 
as a note under section 101 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 106, 109, 303, 349, 362, 
502, 522, 546, 548, 550, 551, 552, 749, 764, 901, 926 of this title.