On March 15, 2011, Tim’s Neighborhood Hardware (TNH) financed a large portion of inventory by obtaining a $50,000 loan from First Community Bank (FCB) and signed a security agreement granting FCB a security interest in “all of Debtor's accounts, now owned and after acquired.” 

A year later, on March 15, 2012, FCB became nervous about TNH’s financial condition and began to collect on TNH’s accounts, notifying debtors to pay the remaining balances on the accounts to FCB.  At that time, the balance of TNH’s debt is $35,000, and the value of TNH’s accounts is $40,000.  FCB’s concern about TNH’s financial situation proves justified when 40 days later, on April 24th, TNH filed for Chapter 7 bankruptcy.  The bankruptcy trustee wants to set aside FCB’s security interest as a preference.  What result?

1.     The collections MAY be set aside because FCB received payments on the debt within 90 days of the bankruptcy petition.

2.     Not enough information.

3.     The trustee MAY NOT set aside any portion of FCB's security interest in the accounts, because FCB’s security interest attached on the day the inventory was purchased, March 15, 2011, which is over a year before to TNH’s chapter 7 petition, easily prior the 90 days period of presumed insolvency in § 547(f).

4.     The trustee MAY NOT set aside any portion of FCB's security interest in the accounts, because FCB was “oversecured" at the time it began collecting the accounts.