Debtor Account Deposits Not a Transfer, Can’t Be Undone

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By Diane Davis

Wire transfers and other bank deposits into a debtor’s unrestricted personal checking account aren’t “transfers” under the federal Bankruptcy Code, the U.S. Court of Appeals for the Fourth Circuit held Jan. 31 ( Ivey v. First Citizens Bank & Tr. Co. (In re Whitley) , 4th Cir., No. 15-2209, 1/31/17 ).

In this case, the transactions didn’t diminish the bankruptcy estate or place funds beyond the reach of creditors, and weren’t avoidable, or can’t be undone, as fraudulent transfers, Chief Judge Roger L. Gregory wrote.

Courts are divided over whether the definition of “transfer” under Bankruptcy Code Section 101(54) includes deposits in a debtor’s unrestricted checking account during the regular course of business, the court said.

When a debtor is free to access those funds at will, the required “disposing of” or “parting with” property hasn’t occurred, so there hasn’t been a transfer, the court concluded.

Debtor James Whitley was involved in a Ponzi scheme in which he defrauded his friends and family of millions. After the scheme unraveled, eight creditors filed a petition to force Whitley into bankruptcy.

Two years after he was convicted of wire fraud and money laundering, Chapter 7 trustee Charles M. Ivey, III, filed a complaint against First Citizens Bank & Trust Co. It alleged that certain deposits and wire transfers to Whitley’s personal checking account at First Citizens were avoidable as fraudulent transfers under Bankruptcy Code Section 548.

Because the transfers didn’t diminish the bankruptcy estate or place funds beyond the reach of creditors, they weren’t avoidable as fraudulent transfers, the bankruptcy and district courts found.

The trustee unsuccessfully argued on appeal that where actual fraudulent intent is present, there is no requirement that the transactions diminish or move property away from the bankruptcy estate.

Judge James A. Wynn Jr., and Senior Judge Andre M. Davis joined the opinion.

Ivey, McClellan, Gatton & Siegmund, L.L.P., represented the Chapter 7 trustee; Ward & Smith, P.A., represented First Citizens Bank.

To contact the reporter on this story: Diane Davis in Washington at

To contact the editor responsible for this story: Jay Horowitz at

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