Tenderloin sold its real property, repaying Bank of the West $190,000 on a loan that was secured by that property and depositing a remaining sum of $526,000 in its Bank of the West checking account.  Then, within 90 days, Tenderloin filed a bankruptcy petition.  Held, the bankruptcy trustee may recoup the $190,000 debt payment because in a hypothetical Chapter 7, the trustee would have been able to recoup that sum as a preference and the total distribution to Bank of the West would have been less than the $190,000 amount it received.  The bankruptcy court erred in holding that Bank of the West would, in the hypothetical Chapter 7 have recouped the entire $190,000 payment by set off against the $526,000 balance in Tenderloin’s account since the transfer of those funds into the account were also a preference to the extent the deposit increased Bank of the West’s rights to payment.

Ninth Circuit Court of Appeals (Smith, M., J.; Korman, J., concurring); March 7, 2017; 2017 WL 894461