David Taylor v. Usaa Federal Savings Bank

ORDER AND OPINION

ORDER

The opinion filed on February 26, 2010, is withdrawn. A replacement opinion will be filed concurrently with this order.

OPINION

In 2005, David and Linda Taylor bought a Toyota Camry right before declaring bankruptcy. Their lender, USAA Federal Savings Bank (“USAA”), procured from the Taylors a security interest in the car as collateral for the loan. USAA perfected its security interest 21 days after the Taylors purchased their car; USAA’s perfection was timely under Idaho law, but one day late under federal bankruptcy provisions. The Taylors’ conveyance of a security interest to USAA was then avoidable by the Taylors’ bankruptcy trustee, as a preferential transfer. The trustee moved the bankruptcy court to avoid the transfer and the court granted the motion.

We address a recurring question in many bankruptcies: What should be the remedy when a court holds that a security interest is avoidable as a preferential transfer? When a bankruptcy court avoids a preferential transfer, it may award the bankrupt estate either the actual transferred property or the value of the transferred property. 11 U.S.C. § 550 (a). Here, the bankruptcy court declined to award…