## Facts

- Ebbler Furniture and Appliances, Inc. filed a voluntary Chapter 7 bankruptcy petition.
- Alton Banking & Trust Co. financed Ebbler and held a floating lien on Ebbler’s inventory and accounts receivable.
- During the 90 days before the petition date, Ebbler’s purchases totaled $170,911.33; cost of goods sold totaled $214,065.19; and ending inventory was valued at $67,000 (at cost).
- Using a cost-based accounting reconstruction, the bankruptcy court calculated beginning inventory at $110,000.
- The bankruptcy court found accounts receivable subject to the lien of $19,000 and debt owed to the Bank of about $204,571.61.
- Shortly before filing, the Bank repossessed and sold roughly $50,000 (cost basis) of inventory after Ebbler conducted a going-out-of-business sale and made payments reducing the debt.
- The trustee sued to avoid a preference under 11 U.S.C. §§ 547(b) and 547(c)(5), alleging the Bank’s undersecured position improved during the preference period.
- The bankruptcy court found an avoidable preference initially around $75,000, then adjusted it to $60,000 for an inventory-value discrepancy; the district court affirmed.
- On appeal, the Bank argued inventory should be valued at a higher going-concern/retail figure (approximately cost plus 60%), which would have eliminated any improvement in position.

## Issues

1. How should “value” be determined under 11 U.S.C. § 547(c)(5) when measuring a floating-lien creditor’s improvement in position: cost, retail/going-concern value, liquidation value, or a context-dependent method?
2. Whether the bankruptcy court clearly erred by valuing the collateral at cost based on the parties’ course of dealing.
3. Whether the preference amount was calculated with sufficient precision.

## Decision

- The Seventh Circuit affirmed the use of cost as the valuation measure on these facts.
- The court held that § 547(c)(5) does not impose a single mandatory valuation method; “value” depends on factual circumstances.
- The court deferred to the bankruptcy court’s factual findings, including that the parties evaluated collateral on a cost basis, and found no clear error in using cost.
- The court remanded for further proceedings to determine the precise amount of the avoidable preference.

## Legal Principles

- Under 11 U.S.C. § 547(c)(5), a floating-lien creditor is protected from preference liability only to the extent its secured position did not improve during the 90-day prepetition period at the expense of unsecured creditors.
- Measuring “improvement in position” requires valuing collateral at two points (start of the 90-day period and petition date) and comparing the creditor’s degree of (under)security.
- The statutory term “value” in § 547(c)(5) is not fixed to a single measure; courts select a valuation method case by case.
- Because valuation choice turns on context, appellate review gives deference to bankruptcy-court factual determinations under the clearly erroneous standard.

## Conclusion

The Seventh Circuit held that “value” in § 547(c)(5) is determined by the circumstances rather than a uniform formula, approved cost-based valuation where the parties treated collateral at cost, and remanded solely to refine the numerical calculation of the preference.


In re Ebbler Furniture & Appliances, Inc., 804 F.2d 87 (7th Cir. 1986)