concurring in part and dissenting in part:

I concur in Part II of the majority’s opinion but respectfully dissent from Part I. In my view, under 11 U.S.C. § 547 (b)(5) and (g) a bankruptcy trustee need not prove, as part of the prima facie case establishing an avoidable preference, that a creditor was not fully secured at the time *969 of the allegedly preferential payment, when the value of the collateral on the petition date exceeds the creditor’s claim on the petition date.

To establish a prima facie case that a payment to a creditor was preferential, the trustee must show that the payment enabled the creditor to receive more than it would have in a chapter 7 proceeding had the payment not been made. 11 U.S.C. § 547 (b)(5) & (g); see also 3 Norton Bankr.L. & Prac.2d § 57:9, at 57-39 (West 1997) (“[A] two-part analysis is required. First, one must determine what the creditor receives if the transfer remains valid. Second, one must determine what the creditor would have received in a liquidation case if the transfer had not been made. The appropriate date for this analysis is the date of the petition filing.” (emphasis added; footnote omitted)). “Whether a creditor has received a preference is to be determined, not by what the situation would have been if the debtor’s assets had been liquidated and distributed among his creditors at the time the alleged preferential payment was made, but by the actual effect of the payment as determined when bankruptcy results.” Palmer Clay Prods. Co. v. Brown, 297 U.S. 227, 229 , 56 S.Ct. 450 , 80 L.Ed. 655 (1936); see also Alvarado v. Walsh (In re LCO Enters.), 12 F.3d 938, 942 (9th Cir.1993).

The bankruptcy court and the majority err in two ways. First, by holding that TCFC was fully secured for purposes of § 547(b)(5) analysis, they disregard the statutory directive to determine what the status of TCFC’s claims would have been had the challenged payments not been made. Second, by holding that the trustee was required to prove that TCFC was undersecured on the date of each challenged payment, they effectively shift to the trustee a burden of proof placed on TCFC by the Bankruptcy Code.

1. For purposes of § 517(b)(5), TCFC was not fully secured.

Although we have recognized that “[p]re-petition payments to a fully secured creditor generally ‘will not be considered preferential because the creditor would not receive more than in a chapter 7 liquidation,’ ” Committee of Creditors Holding Unsecured Claims v. Koch Oil Co. (In re Powerine Oil Co.), 59 F.3d 969, 972 (9th Cir.1995) (quoting 5 Collier on Bankruptcy ¶ 547.08, at 547-47 (Lawrence P. King ed., 15th ed.1995)), our previous cases have not defined what it takes to make a creditor “fully secured” within the meaning of § 547(b)(5). The mere fact that the value of a creditor’s collateral exceeds the bankrupt’s indebtedness in a “snapshot” on the petition date does not establish that a creditor is fully secured for purposes of § 547(b)(5) analysis. See Official Comm. of Unsecured Creditors v. Am. Sterilizer (In re Comptronix Corp.), 239 B.R. 357, 362-63 (Bankr.M.D.Tenn.1999) (holding that a creditor cannot defeat a claim of preference merely by showing that the debt is fully secured on the petition date). Instead, § 547(b)(5) requires the court to determine what the status of the creditor’s claims would have been had the challenged payments not been made. See Wickham v. United Am. Bank (In re Property Leasing & Mgmt., Inc.), 46 B.R. 903, 911 (Bankr.E.D.Tenn.1985) (“[T]he only relevant question is what the secured status of the claim would have been [had the payments not been made] on the date of'the petition since that alone would determine the distribution to ’ which [the creditor] would have been entitled in a chapter 7 liquidation.”). Only then can the court analyze whether, and to what extent, the payments caused a creditor to receive more than it would have in a hypothetical chapter 7 liquidation.

*970 To summarize, 11 U.S.C. § 547 (b)(5) directs a court that is analyzing a preference claim to compare two quantities: the amount that the creditor actually received, and the amount that the creditor would have received in a hypothetical chapter 7 liquidation had the allegedly preferential transfers not been made. Elliott v. Frontier Props. (In re Lewis W. Shurtleff, Inc.), 778 F.2d 1416, 1423 (9th Cir.1985). To the extent that challenged payments permit the creditor to receive more than it would have in the hypothetical liquidation, the trustee can avoid them. 11 U.S.C. § 547 (b). The statute contains no exception for a “floating-lien” creditor. 1

a. Aggregated Analysis

Although the text of the Code directs the court to examine each challenged payment individually, 2 for simplicity, I will analyze them in the aggregate because the result is the same under either approach on these facts. 3 The result is the same here because: (1) TCFC’s collateral was not the source of the allegedly preferential payments, so the return of the payments to the estate would not increase the value of the collateral securing Smith’s indebtedness to TCFC; (2) TCFC already received the full value of its collateral; (3) each payment allowed TCFC to receive an amount in excess of the value of its collateral; (4) TCFC’s claim was unsecured to the extent that it exceeded the value of the collateral; and (5) other creditors with unsecured claims received no payments on those claims. 4

b. What TCFC Actually Received

In analyzing the amount that a challenged transfer enabled the creditor to receive, the “creditor must be charged with the value of what was transferred plus any additional amount that he would be entitled to receive from a Chapter 7 liquidation.” Shurtleff, 778 F.2d at 1421 (emphasis in original). The challenged *971 payments ($12,842,438.96) and the liquidation of TCFC’s collateral ($10,823,-010.58) caused TCFC to receive a total of $23,665,449.54.

c. TCFC’s Entitlement in a Hypothetical Chapter 7 Liquidation

As explained above, 11 U.S.C. § 547 (b)(5) instructs us to analyze how much TCFC would have received in a chapter 7 liquidation conducted on the petition date, had the challenged payments not been made. The return of the payments to the estate potentially alters two quantities: (1) the amount of the creditor’s claim against the estate on the petition date and (2) the amount of collateral securing the creditor’s claim on the petition date. Those two quantities ultimately determine the extent to which a creditor is secured for purposes of § 547(b)(5).

(i) TCFC’s Claim Against the Estate

In this case, had the payments not been made, Smith’s would have owed TCFC $10,728,809.96 (its actual claim on the petition date) plus $12,842,438.96 (the amount of antecedent debt paid in the preference-period transfers), or a total of $23,571,248.92. Thus, TCFC’s hypothetical claim against the estate, in an analysis under § 547(b)(5), is $23,571,248.92. See Henderson v. Nat’l Bank of Commerce (In re Al-Ben, Inc.), 156 B.R. 72, 75 (Bankr.N.D.Ala.1991) (holding that the creditor’s claim on the petition date “for purposes of a § 547(b)(5) analysis” was “the unpaid balance of the store loans as of the filing date, plus the total amount of the alleged preferential payments”); see also, e.g., Gray v. A.I. Credit Corp. (In re Paris Indus. Corp.), 130 B.R. 1, 3-4 (Bankr.D.Me.1991) (computing the amount of the creditor’s claim for purposes of § 547(b)(5) by adding the amount of the challenged payments to the amount of the creditor’s claim on the petition date); Property Leasing & Mgmt., 46 B.R. at 911-12 (same).

(ii) The Value of the Collateral

Although the relevant date for assessing the value of the collateral securing a creditor’s debt is the petition date, see Palmer Clay Prods., 297 U.S. at 229 , 56 S.Ct. 450 ; LCO Enters., 12 F.3d at 942 , § 547(b)(5) requires an adjustment to that amount when the source of the allegedly preferential payments was the secured party’s collateral. See Krafsur v. Scurlock Permian Corp. (In re El Paso Refinery), 171 F.3d 249 , 254-55 (5th Cir.1999) (“[T]he creditor will not be deemed to have received a greater percentage as a result of the payment if the source of the payment is the creditor’s own collateral.”); Sloan v. Zions First Nat’l Bank (In re Castletons, Inc.), 990 F.2d 551, 554-55 (10th Cir.1993) (concluding that a secured creditor was not preferred when all the challenged payments were from assets subject to the creditor’s security interest). The reason for the adjustment is that, when the source of the payments is the creditor’s own collateral, then, had the payments not been made, the assets would have remained in the estate as part of the collateral securing the creditor’s debt. To that extent, the value of the collateral securing the creditor’s debt would be greater. See El Paso Refinery, 171 F.3d at 255 (“A creditor who merely recovers its own collateral receives no more as a result than it would have received anyway had the funds been retained by the debtor, subject to the creditor’s security interest.”).

In this case, the trustee presented evidence that 31 of the challenged payments were from commingled funds that were not traceable to proceeds of TCFC’s collateral. The other 5 payments were from debtors who owed money to Smith’s and *972 who, at Smith’s direction, sent the payments to TCFC on behalf of Smith’s. Accordingly, had the payments not been made, all the funds would have been unencumbered and available to pay unsecured claims. 5

Because the challenged payments were not traceable to TCFC’s collateral, the trustee established a prima facie case that the payments were avoidable preferences by proving that: (1) the value of the collateral was $10,823,010.58, its worth as of the petition date; and (2) the creditor’s claim, as calculated above, was $23,571,248.92. Under 11 U.S.C. § 506 (a), a creditor’s claim “is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest .in such property ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim.” TCFC held a secured claim for $10,823,010.58, the extent of the value of the collateral, and an unsecured claim for the remainder. Because the unsecured creditors of Smith’s received no payments on their claims in this proceeding, TCFC would have been paid in full on its secured claim only. Thus, in a hypothetical chapter 7 liquidation, TCFC would have recovered only $10,823,010.58. Clearly, as illustrated in the charts in the Appendix, the payments enabled TCFC to receive more: $23,665,449.54. The trustee is entitled to recover the excess ($12,842,438.96) as a preference under 11 U.S.C. § 547 , unless TCFC proves its affirmative defense.

2. The bankruptcy court and the majority improperly require Smith’s to prove the absence of TCFC’s affirmative defense.

The bankruptcy court held, and the majority agrees, that the trustee did not meet his burden of proof in establishing his prima facie case because the trustee’s proof does not establish that TCFC was undersecured at the time the payments were made. (Majority op. at 13142.) In so holding, the majority improperly requires the trustee to prove the absence of the creditor’s affirmative defense as part of his prima facie case.

A payment to a fully secured creditor is not preferential because the payment does not deplete the bankruptcy estate. 3 Norton Bankr.L & Prae.2d § 57:9. “For example, payment to a fully secured creditor does not diminish the value of the estate since, while cash is removed from the estate, the secured party’s lien is reduced in equal amount.” Id. § 57:9, at 57-42. Thus, the reason why a creditor who is fully secured at the time of a challenged payment cannot be considered “preferred” by a pre-petition payment is that the creditor, in general, contemporaneously returns value to the estate in the form of an equal reduction of the lien.

Under 11 U.S.C. § 547 (c)(1), a trustee cannot avoid a payment to a creditor if the creditor establishes that the payment “was intended by the debtor and the creditor ... to be a contemporaneous exchange for new value given to the debtor” and was “in fact a substantially contemporaneous ex *973 change.” See also 11 U.S.C. § 547 (g) (allocating the burden of proof to the creditor). We have recognized that the release of a security interest to the extent of a payment is one form of “new value” that a creditor may give in exchange for the debtor’s payment. “[P]ayments by a debt- or in exchange for a secured creditor’s release of its security interest falls within the exception of section 547(c)(1).” O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 959 (9th Cir. 1989); see also Sulmeyer v. Pac. Suzuki (In re Grand Chevrolet, Inc.), 25 F.3d 728, 734 (9th Cir.1994) (holding that, for purposes of § 547(c)(1), a creditor confers new value on the debtor’s estate by releasing security interests). Thus, 11 U.S.C. § 547 (c)(1) permits a creditor to defend against a trustee’s claim of preferential payment by establishing that it contemporaneously released a valid security interest in the debtor’s property to the extent of an allegedly preferential payment.

By requiring the trustee to show that the creditor was not fully secured on the date of each payment, the bankruptcy court and the majority effectively require the trustee to prove the absence of the creditor’s affirmative defense, i.e., that the creditor did not contemporaneously exchange newr value with the debtor. This is contrary to the statute. Subsections 547(c)(1) and 547(g) plainly require the creditor to show, in order to defeat the trustee’s claim of preference, that the creditor contemporaneously released a valid security interest, or otherwise gave new value, to the extent of the payment that it received.

This result is not changed by the fact that the security interest at issue is a floating lien. The text of the statute does not differentiate between payments made on debts secured by floating liens and payments made on debts secured by other types of liens. See 11 U.S.C. § 547 (b). Although it may be unwieldy for a creditor to prove that, for each payment made on a debt secured by a floating lien, it contemporaneously extended new credit, released a security interest, or otherwise gave new value, that is what the statute requires. My conclusion is buttressed by the fact that, when Congress has determined that the unique character of a floating lien demands special treatment in bankruptcy, it has provided expressly for differential treatment. See 11 U.S.C. § 547 (c)(5) (providing that floating liens on inventory and receivables cannot be avoided as preferences except to the extent that they permit a creditor to improve its position during the preference period).

Neither is this result changed by the creditor’s decision, for whatever reason, to forego reliance on a defense under 11 U.S.C. § 547 (c)(1), or by any perceived unfairness in the outcome. Strategic and equitable considerations cannot rewrite the Bankruptcy Code.

In sum, because the statute places the burden on the creditor to show that it gave new value in exchange for payments received, the bankruptcy court and the majority err in concluding that the trustee had failed to meet his burden of proof under 11 U.S.C. § 547 (b)(5).

3. The majority reverses the statutory incentives by encouraging a “race of diligence. ”

The majority holds that, in a floating-lien case, the trustee must show that the creditor was undersecured at some specific time during the preference period, in addition to using the statutory add-back method. In the previous sections I have explained that there is no textual support in the statute for this proposition, nor for treating a floating lien differently.

*974 Additionally, the rule adopted by the majority undermines one of the articulated policies underlying § 547: “The operation of the preference section [is] to deter ‘the race of diligence’ of creditors to dismember the debtor before bankruptcy furthers the second goal of the preference section— that of equality of distribution.” H.R.Rep. No. 595, 95th Cong., 1st Sess. 177-178 (1977), U.S.Code Cong. & Admin. News 1978, pp. 5787, 6138 (as quoted in Schwinn Plan Comm. v. Transamerica Ins. Fin. Corp. (In re Schwinn Bicycle Co.), 200 B.R. 980, 993 (Bankr.N.D.Ill.1996)). The rule stated by the majority encourages secured creditors to engage in precisely that type of “race of diligence.” Creditors who fear that a debtor is facing bankruptcy will want to extract enough payments from the debtor to make sure that, on the petition date, the value of their remaining collateral exceeds the amount of indebtedness.

Consider this example of two similarly-situated creditors: Suppose that Debtor transfers $30,001 to Creditor 1 during the preference period (not from the Creditor l’s collateral), in payment of a debt secured by a floating lien. As of the petition date, Debtor owes $9,999 to Creditor 1, secured by a lien on $10,000 of collateral. By contrast, suppose that, during the same period, Debtor transfers $29,999 to Creditor 2 (likewise, not from Creditor 2’s collateral) in payment of a debt secured by a floating lien. On the petition date, the value of Creditor 2’s collateral is $10,000 and the remaining debt is $10,001.

In this hypothetical, the creditors are similarly situated, but the majority’s method of analysis would give Creditor 1 more protection and alter what the trustee must show to sustain his burden of proof. Following the logic of the majority, Creditor 2 will be found to have received a preference unless it can raise one of the § 547(c) defenses. On the other hand, Creditor 1, by virtue of the fact that it received a $2 greater transfer of the debtor’s assets, can withstand a preference attack because the trustee must establish that, at some point before the petition date, the value of the collateral was less than the amount of debt. This differential treatment provides an incentive for the creditors to race to “dismember” the debtor in the hopes of making it harder for the trustee to prove a preference. '

The advantage of the approach that I propose is that it treats Creditor 1 and Creditor 2 identically and requires the trustee to prove the same information with respect to both. That identical approach is consistent with the text of § 547(b), which does not provide a textual basis for distinguishing between the two creditors.

In conclusion, I agree that we must affirm the bankruptcy court’s rulings with respect to liquidation costs. On the other hand, I would hold that the bankruptcy court erroneously applied 11 U.S.C. § 547 (b)(5) and, accordingly, dissent from the majority’s contrary decision.

*975 APPENDIX TOTAL AMOUNT THAT TCFC HAS RECEIVED BECAUSE OF PAYMENTS

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. Henderson v. National Bank of Commerce (In re Al-Ben, Inc.), 156 B.R. 72 (Bankr.N.D.Ala.1991), supports my analytical approach, rather than the majority's. That case actually applied the add-back method endorsed in this dissent. The court there found no preference only because the value of the collateral exceeded the amount of debt even after the challenged payments were "added back.”

. See 11 U.S.C. § 547 (b) (providing that "the trustee may avoid any transfer of an interest of the debtor in property” (emphasis added)); cf. 11 U.S.C. § 547 (c)(5) (requiring an analysis of "the aggregate of all such transfers” to determine whether the specified affirmative defense is applicable).

. An aggregated analysis may not yield the same results as a payment-by-payment analysis under different circumstances, for example: (1) when the creditor has not been paid the value of its collateral at the time of the preference claim; (2) when the source of some or all of the pre-petition payments was the creditor’s collateral; or (3) when the estate has sufficient assets to pay something toward unsecured claims.

.The § 547(b)(5) analysis for an individual -payment differs depending on whether the payment renders the creditor partially secured or fully secured in the hypothetical liquidation. If the creditor is partially secured, then it is entitled to collect the value of its secured claim, i.e., the value of its collateral. 11 U.S.C. § 506 (a). If the creditor is fully secured, then it is authorized to collect the value of its claim plus reasonable fees authorized by the security agreement up to the value of its collateral. 11 U.S.C. § 506 (b). In either instance, in a case like this where (a) the challenged payments did not come from the creditor’s collateral and (b) unsecured creditors will not be paid on any of their claims, a secured creditor’s maximum recovery is the value of its collateral on the petition date. Because each payment enabled TCFC to receive the value of that payment in addition to the value of the collateral, which it already received in full, each payment was preferential.

. On appeal, TCFC does not dispute the trustee’s characterization of the source of the challenged payments. Moreover, in this circuit, in a bankruptcy proceeding, a secured creditor bears the burden of establishing that funds in a commingled account are traceable to the proceeds of its collateral and thus covered by its security interest. See, e.g., Stoumbos v. Kilimnik, 988 F.2d 949 , 957 (9th Cir.1993); see also Ariz. Wholesale Supply Co. v. Itule (In re Gibson Prods. of Ariz.), 543 F.2d 652, 657 (9th Cir.1976) (stating general rule that a creditor’s security interest in proceeds in a commingled account is "presumptively preferential” as to the trustee, except to the extent the creditor can trace its proceeds). TCFC does not attempt to trace the payments to proceeds of its collateral.