Recent Case Summary
Forbearance is not new value for preference defense purposes
The State of Arkansas received tax payments from the Debtor within the preference period prior to his bankruptcy filing. Upon the Trustee’s action to avoid and recover these payments under §547, the State asserted, among other defenses, the contemporaneous exchange for new value exception of §547(c)(1). The State argued that its agreement with the Debtor to refrain from taking legal action, including closing the doors of the Debtor’s business, constituted “new value” or “new credit” within the meaning of the statutory exception. Judge Venters disagreed, finding that merely “refraining from exercising a pre-petition right is not new value.” In re Valley Foods Services LLC, 2008 WL 2039015 (Bkrtcy. W.D.Mo. 2008).
Comment: The State’s argument in this case demonstrates how preference defenses are frequently stretched completely out of shape, so they have little relationship to their intended policy.