## Facts

- Check Reporting Services, Inc. (CRS) processed Visa/MasterCard transactions for merchants, including The Water Doctor, on a running-account basis.
- Water Doctor submitted credit-card “sales drafts” to CRS; CRS routed drafts through bank channels, received payment, and remitted funds to Water Doctor minus processing fees.
- CRS filed Chapter 7; the trustee brought an adversary proceeding to avoid multiple payments CRS made to Water Doctor during the 90-day preference period under 11 U.S.C. § 547(b).
- For purposes of the cross-motions, Water Doctor assumed the challenged payments were preferential transfers, while disputing the trustee’s entitlement to recover them after accounting for defenses.
- Water Doctor asserted the “subsequent new value” defense under 11 U.S.C. § 547(c)(4), contending it provided new value after receiving preference payments by continuing to tender sales drafts.
- The trustee challenged the scope of the § 547(c)(4) defense under § 547(c)(4)(B) and also disputed whether the evidence established the amount and timing of alleged new value.
- The court addressed cross-motions for summary judgment focused on the proper interpretation and application of § 547(c)(4)(B) and whether factual disputes precluded full summary judgment.

## Issues

1. Under 11 U.S.C. § 547(c)(4)(B), does later payment by the debtor on account of alleged new value defeat the creditor’s new-value offset even if that later payment is itself avoidable?
2. What facts must be established to apply the § 547(c)(4) defense to a series of preference-period transfers on a running account, and were those facts undisputed on summary judgment?

## Decision

- The court rejected a “remains unpaid” reading of § 547(c)(4)(B) that would disallow new value whenever the debtor later made any payment on account of it.
- The court held § 547(c)(4)(B) disqualifies new value only to the extent the debtor made a subsequent transfer on account of that new value that is “otherwise unavoidable.”
- A subsequent transfer that is itself avoidable (including as a preference) is not an “otherwise unavoidable transfer” and does not, by itself, eliminate the creditor’s new-value defense.
- The court granted summary judgment in part and denied it in part because disputed facts remained regarding the proof, amounts, timing, and transactional linkage of asserted new value and subsequent payments.

## Legal Principles

- Section 547(c)(4) allows a creditor to offset preference exposure by new value the creditor gives the debtor after receiving an avoidable transfer, subject to statutory limits.
- Under § 547(c)(4)(B), new value is reduced only when the debtor later makes an “otherwise unavoidable transfer” to or for the benefit of the creditor on account of that new value.
- Statutory interpretation must give effect to “otherwise unavoidable transfer”; courts should not read the provision as imposing a categorical “new value must remain unpaid” requirement.
- Summary judgment is inappropriate where material facts are disputed regarding whether and when new value was provided, its amount, and whether later transfers were “on account of” that new value.

## Conclusion

The court interpreted § 547(c)(4)(B) to preserve the subsequent new value defense unless the creditor was repaid by a transfer the trustee could not avoid, and it resolved the legal interpretation on summary judgment while leaving fact-bound questions about the asserted new value for further proceedings.


In re Check Reporting Servs., Inc., 140 B.R. 425 (Bankr. W.D. Mich. 1992)