MABEY, Bankruptcy Judge
A bankrupt depleted all of his assets at the time of making a loan repayment to a creditor had neither a perfected security interest in the collateral, nor an equitable lien under Sec. 60a(6) of the Bankruptcy Act. Therefore, this transfer, within four months of bankruptcy, was a voidable preference under Section 60. See Sec. 60 at ¶ 2552 and Sec. 547(b) at ¶ 9529, and Sec. 60a(6) at ¶ 2557.
[Digest of Opinion]
The creditor made a temporary unsecured loan of $3,000 to the bankrupt for the specific purpose of allowing the bankrupt to complete a remodeling job. Although the work was never totally completed, the bankrupt received payments on October 27, 1978 in the amount of $5,075, on November 2, 1978 in the amount of $4,500, and on November 10, 1979 in the amount of $4,000. On November 21, 1978, the bankrupt made a partial repayment to the creditor in the amount of $2,000. A final repayment on the loan in the amount of $1000 was made approximately a month later.
On February 21, 1979, the bankrupt filed a petition in bankruptcy. The trustee instituted this action against the creditor to set aside the bankruptcy's repayments on the grounds that they constituted a voidable preference under Section 60 of the Bankruptcy Act.
The parties stipulated to all elements of a preference except one, whether the repayment of the loan depleted the bankrupt's estate. The depletion question principally turned on whether the repayments were made to extinguish some perfected interest that the creditor held in the property of the bankrupt. If made in exchange for the release of a perfected interest, the court observed, no depletion of the estate resulted. Further, since the only property the bankrupt even discussed in relation to the loan was that to do with the remodeling job, the court limited the inquiry to a determination of whether the creditor ever acquired a perfected interest in that account.
The court found, that the creditor did not claim, nor was there any evidence, of obtaining an interest in the remodeling account which would qualify as a perfected security interest under Article 9 of the state's Uniform Commercial Code.
The court next turned its attention to whether the creditor had an equitable lien under Section 60(a)(6) of the Bankruptcy Act. In deciding this issue, the court cited Porter v. Searle, 228 F.2d 748 (10th Cir. 1955) which involved an attempt by the trustee to set aside the bankrupt's transfer of certain merchandise to the creditors as a voidable preference. The creditors had sold the merchandise to the bankrupt for a downpayment and a promise to secure the unpaid balance by a chattel mortgage. When the creditors asked the bankrupt to sign the chattel mortgage, he refused. Shortly thereafter, and within four months of an involuntary petition being filed against the bankrupt, the bankrupt surrendered to the creditor merchandise in satisfaction of the balance due on the sale of the merchandise. The court held that the creditor had a perfected equitable lien in the merchandise as to the time the bankrupt refused to execute the chattel mortgage. There was no attempt stipulated to in this case similar to the one in the Porter case to secure the loan. Further, there was no evidence that the creditor was ever promised a security interest or that the bankrupt ever refused to execute the security agreement. Hence, since the creditor had legal means available to perfect her interest and did not employ them, she did not acquire an equitable lien in the account which would satisfy Section 60a(6) of the Bankruptcy Act. Thus, the court found that the loan repayments rendered the bankrupt insolvent and were therefore voidable preferences under Section 60.