Wage Garnisher Effect of a Trustee’s 547 Action

The Fifth Circuit Court of Appeals held on March 13, 2017 that Tower Credit, Inc., a creditor, was required to return wages of the debtor which were garnished during the 90 days prior to the debtor’s filing of the petition. Tower Credit, Inc. tried to overcome the preference by arguing that the “transfer” became effective on the date the garnishment order was entered, which was well before the 90-day period.

Rejecting the creditor’s argument, the Fifth Circuit held that a transfer does not occur until the debtor acquires a right in the property transferred. Since the debtor did not have a right to the wages until earned, the garnishment order was not an effective “transfer” outside the 90-day period. This ruling applied only to the wages garnished within the 90 days prior to the debtor’s petition being filed.