Section 6.17 Subsequent New Value

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

4. (§6.17) Subsequent New Value

Under 11 U.S.C. § 547(c)(4), there is a defense to avoidance of a preferential transfer to the extent that the creditor, after receiving the transfer, extends additional unsecured credit. The purpose of this defense is to encourage creditors to continue to deal with financially distressed debtors, because a creditor who extends new value in exchange for payment cannot later be deemed to have depleted the estate. S. Technical Coll., Inc. v. Hood, 89 F.3d 1381, 1384 (8^th Cir. 1996).

The majority of courts hold that a given extension of new value may be applied against any preceding preferential transfer, not just the immediately preceding transfer, to reduce the creditor’s liability for avoidance. See In re Acoustiseal, Inc., 318 B.R. 521, 525–26 (Bankr. W.D. Mo. 2004) (Federman, B.J.) (following majority line of cases). But a postpetition advance of goods or services does not qualify as new value for the purpose of this defense because that new value is provided to the estate, not
the debtor. In re Bellanca Aircraft Corp., 850 F.2d 1275, 1284–85
(8^th Cir. 1988); In re Vunovich, 74 B.R. 629, 632 (Bankr. D. Kan. 1987).

New value may be given to or for the benefit of the debtor. Thus, this defense...