I don't understand, was Master insolvent or not?
On February 28, Master, Inc., had total assets with a fair market value of $1,200,000 and total liabilities of $990,000. On January 15, Master made a monthly installment note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note. On March 15, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold for less than the balance due on the note to Acme. Master’s payment to Acme could:
A.
be set aside as a preferential transfer because the fair market value of the collateral was greater than the installment note balance.
B.
be set aside as a preferential transfer unless Acme showed that Master was solvent on January 15.
C.
not be set aside as a preferential transfer because Acme was oversecured.
Incorrect D.
not be set aside as a preferential transfer if Acme showed that Master was solvent on March 15.
You answered D. The correct answer is C.
A preferential transfer is a transfer of an interest by a debtor to any party within 90 days of filing the petition or with an insider (or family member) between 90 days and one year of filing the petition. The debtor was insolvent at the time of the transfer, the payment made allowed the creditor more than what the creditor would have received from the Chapter 7 bankruptcy, the payment was made on debt the debtor already owed, and the debtor paid more than $6,225 to one creditor. Therefore, since Master’s assets exceeded its liabilities at the time of the transfer, Masters was not insolvent and the payment to Acme could not be set aside.
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