Fifth Circuit: Pre-petition Payout of Insurance Proceeds Should Be Classified As a ‘Transfer of An Interest’

Section 547 of the Bankruptcy Code provides for the potential recovery of transfers of a debtor’s property occurring within 90 days of bankruptcy. Typically, preference actions involve payments to vendors who previously did business with the debtor on credit. However, vendors are not the only ones who can be tangled up in preference litigation. In a recent case before the U.S. Court of Appeals for the Fifth Circuit, the question of whether a payout of insurance proceeds to a tort claimant, made pre-petition pursuant to Texas state insurance law, should be classified as a “transfer of an interest of the debtor in property” under 11 U.S.C. Section 547. See, Law Office of Rogelio Solis v. Curtis, No. 23-40125, 2023 U.S. App. LEXIS 26621, at *2 (5th Cir. Oct. 6, 2023). In upholding the bankruptcy court’s determination that the payment of insurance proceeds could be such a transfer, the Fifth Circuit underscored the complex interplay between state law, bankruptcy law and the rights of creditors in bankruptcy proceedings.