Case Summary:
The Chapter 7 Trustee brought a preference avoidance action. The Defendant orally agreed to guarantee a debt the Debtor, owed to a third party. This guarantee was made gratuitously and orally, as a favor to his friend. When the Debtor’s payment failed to clear, the Defendant paid the obligation on the Debtor’s behalf. The Debtor then repaid the Defendant. The Trustee sought to avoid those repayments. The parties agreed that the elements of a preference were present. The Court found no defense under § 547(c) applied, in that the guarantee was outside the ordinary course for each man. Further, there was no contemporaneous exchange for new value. When the Debtor repaid the Defendant, he received no new value in exchange, just cancellation of an antecedent debt.

Statute/Rule References:
11 U.S.C. § 547(a)(2) -- Preferences
11 U.S.C. § 547(b) -- Preferences
11 U.S.C. § 547(c)(1) -- Preferences
11 U.S.C. § 547(c)(2) -- Preferences

Key Terms:
Contemporaneous Exchange for New Value
New Value
Ordinary Course
Preferences