## Facts

- Bryan and Julie Marshall filed a Chapter 7 bankruptcy petition in 2005.
- The Marshalls had two MBNA credit card accounts (later succeeded by FIA Card Services, N.A.) and two Capital One credit card accounts.
- Within 90 days before filing, the Marshalls initiated balance transfers that caused Capital One to pay MBNA approximately $38,000.
- The Chapter 7 trustee, Linda S. Parks, sued FIA/MBNA to avoid the payments as preferential transfers under 11 U.S.C. § 547(b).
- The bankruptcy court ruled the payments were not avoidable because the transactions merely substituted one creditor (Capital One) for another (MBNA) and did not involve a transfer of the debtor’s property interest.
- The district court affirmed, applying the earmarking doctrine.
- The trustee appealed to the Tenth Circuit.

## Issues

1. Whether credit card balance transfers made within 90 days prepetition, where a new lender pays an old lender, are “transfers of an interest of the debtor in property” avoidable under 11 U.S.C. § 547(b).
2. Whether the earmarking doctrine applies to such balance transfers, such that the bankruptcy estate is not diminished and preference avoidance is unavailable.

## Decision

- The Tenth Circuit affirmed the district court and bankruptcy court.
- The court held the payments to MBNA were not avoidable preferences because they were not transfers of an interest of the debtor in property under § 547(b).
- The court concluded the earmarking doctrine applied: Capital One advanced credit for the purpose of paying MBNA, and the transaction did not diminish the bankruptcy estate.
- The trustee could not recover the approximately $38,000 transferred to MBNA through the balance-transfer transactions.

## Legal Principles

- A trustee may avoid a transfer as a preference under 11 U.S.C. § 547(b) only if there is a threshold “transfer of an interest of the debtor in property,” meaning property that would have been available for distribution to creditors absent the transfer.
- The earmarking doctrine bars preference avoidance when a new creditor provides funds intended to pay a designated old creditor, the funds are used as intended, the debtor lacks meaningful dominion over the funds, and the estate is not diminished.
- A payment that merely substitutes one creditor for another, without reducing assets available to the creditor body as a whole, does not implicate preference policy and is not avoidable under § 547(b).

## Conclusion

The Tenth Circuit held that prepetition credit card balance transfers in which a new card issuer directly pays an existing card issuer can fall within the earmarking doctrine and are not avoidable preferences when the debtor does not control the funds in a way that makes them part of the bankruptcy estate and the transaction does not reduce assets available to creditors.


Parks v. FIA Card Servs., N.A. (In re Marshall), 550 F.3d 1251 (10th Cir. 2008)