Itzhak

UNITED STATES BANKRUPTCY COURT FOR PUBLICATION

SOUTHERN DISTRICT OF NEW YORK

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Chapter 11

In re: Erica Itzhak,

Case No.: 24-10669 (JPM)

Debtor.

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Erica Itzhak,

Plaintiff,

-v- Adv. Pro. No. 25-01029 (JPM)

Yossef Kahlon,

Defendant.

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APPEARANCES:

TARTER KRINSKY & DROGIN LLP

Attorneys for Plaintiff Erica Itzhak

1350 Broadway, 11th Floor

New York, NY 10018

By: Scott S. Markowitz

DARROW EVERETT, LLP

Attorneys for Defendant Yossef Kahlon

1 SE 3rd Ave, Ste #2520

Miami, FL 33131

By: David Harris Haft

MEMORANDUM OPINION AND ORDER

JOHN P. MASTANDO III

UNITED STATES BANKRUPTCY JUDGE

I. INTRODUCTION

This is an adversary proceeding (the “Adversary Proceeding”) arising in the bankruptcy

case In re: Erica Itzhak, Case No. 24-10669. (Docket No. 80).1 On February 4, 2025, Plaintiff

filed Debtor’s Complaint To Avoid Transfer Pursuant to 11 U.S.C. § 547 (the “Complaint”). (Adv.

Docket No. 1). The Complaint seeks to avoid, as a preferential transfer, a pre-petition lien on

cooperative shares (the “Shares”) owned by Plaintiff/Debtor Erica Itzhak (“Plaintiff”) related to

the property located at 345 East 56th Street, Apt. 4D, New York, NY 10022 (the “Property”).

On March 7, 2025, Yossef Kahlon (“Defendant”) filed the Notice of Motion to Dismiss

[Adv. Docket No. 5] and Defendant’s Memorandum of Law In Support Of Motion to Dismiss

Adversary Complaint [Adv. Docket No. 6] (collectively, the “Motion to Dismiss”). The Motion

to Dismiss seeks dismissal under Rule 12(b)(6) for failure to state a claim upon which relief can

be granted.

On March 31, 2025, Plaintiff filed Plaintiff’s Opposition to Motion to Dismiss and Cross

Motion for Summary Judgment (the “Summary Judgment Motion”). (Adv. Docket No. 8). The

Summary Judgment Motion argues that: (1) the Motion to Dismiss should be converted to a motion

for summary judgment pursuant to Rule 12(d); and (2) summary judgment should be granted in

1 References to “Docket No.” are to filings entered in the bankruptcy case In re: Erica Itzhak, Case No. 24-10669

(April 19, 2024). References to “Adv. Docket No.” are to filings entered in the adversary proceeding Erica Itzhak v.

Yossef Kahlon, Case No. 25-01029 (February 4, 2025).

References to “Rule __” are to the Federal Rules of Civil Procedure. References to “Bankruptcy Rule __” are to the

Federal Rules of Bankruptcy Procedure. References to “Local Rule” are to the Local Bankruptcy Rules for the

Southern District of New York. References to “Bankruptcy Code” are to Title 11 of the U.S. Code (11 U.S.C.).

References to “Section 547” are to 11 U.S.C. § 547.

favor of Plaintiff based on a finding that the lien is a “preferential transfer” under Section 547(b).

(Id.). In support of the Summary Judgment Motion is Plaintiff’s Statement of Undisputed Facts

Pursuant to LBR 7056-1 (the “Statement of Undisputed Facts”). (Adv. Docket No. 9).

On June 17, 2025, Defendant filed Defendant Yossef Kahlon’s Memorandum of Law In

Opposition To Plaintiff’s Cross-Motion For Summary Judgment (the “Summary Judgment

Opposition”). (Adv. Docket No. 14).

On June 26, 2025, Plaintiff filed Plaintiff’s/Debtor’s Reply to Defendant’s Memorandum of

Law in Opposition to Plaintiff’s Cross-Motion for Summary Judgment [Adv. Docket No. 15] (the

“Plaintiff’s Reply”), together with a Declaration in Support of Summary Judgment Motion [Adv.

Docket No. 16] (the “Plaintiff’s Declaration”).

For the reasons set forth below, the Court finds that the lien obtained by Defendant on

February 15, 2024 constitutes a preferential transfer under Section 547(b), and the Court thus

GRANTS the Summary Judgment Motion and DENIES the Motion to Dismiss.

II. JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and

(b)(1) and the Amended Standing Order of Reference dated January 31, 2012 (Preska, C.J.). This

is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L).

III. FACTUAL BACKGROUND & PROCEDURAL HISTORY

Plaintiff is a licensed attorney residing in New York. (Complaint, ¶ 4). In March 2016,

Defendant Kahlon commenced an action for legal malpractice against Itzhak, styled Yossef Kahlon,

et. al. v. Erica T. Yitzhak, et. al., Case No. 24-5383, in the Supreme Court of the State of New York,

County of Nassau (the “State Court”). (Statement of Undisputed Facts, ¶ 1). On April 29, 2022,

the State Court granted summary judgment in favor of Defendant Kahlon on the malpractice claim

and entered a judgment for over $1.5 million against Itzhak (the “State Court Judgment” or

“Judgment”). (Id. at ¶ 2). On February 15, 2024, Defendant Kahlon delivered an “Execution

With Notice to Garnishee” to the Sheriff thereby enforcing the Judgment and creating a lien against

the Shares related to the Property (the “Lien”). (Id. at ¶ 3); (see also Summary Judgment Motion,

Exhibit A).

Less than 90 days later, on April 19, 2024 (the “Petition Date”), Plaintiff filed a petition

for relief under Chapter 13 of the Bankruptcy Code (the “Bankruptcy Proceeding”). (Docket

No. 1). On July 1, 2024, the Chapter 13 case was converted to one under Subchapter V of Chapter

11 of the Bankruptcy Code. (Docket No. 36). Thereafter, the Plaintiff/Debtor filed the instant

Complaint in the Adversary Proceeding. (Adv. Docket No. 1).

IV. THE PARTIES’ ARGUMENTS

In the Complaint, Plaintiff/Debtor argues that the Lien should be avoided as a preference

under Section 547(b). (Complaint, ¶ 25). As discussed above, Plaintiff alleges that the preferential

transfer occurred within 90 days of the Petition Date. (Id. at ¶ 19). Plaintiff asserts that a “pre-

petition transfer” occurred under Section 101(54) when Defendant delivered the Execution With

Notice to Garnishee to the Sheriff to secure Defendant’s interest in the Shares. (Id. at ¶¶ 15, 20,

citing Exhibit A, Execution With Notice to Garnishee). Plaintiff also asserts that the transfer was

on account of an antecedent debt owed by Plaintiff/Debtor to Defendant and was made while the

Debtor was insolvent. (Id. at ¶¶ 21, 22). Plaintiff further asserts that the transfer was made to and

for the benefit of Defendant and enabled Defendant to “receive more than Defendant would have

received” if the case were a Chapter 7 and if the transfer had not been made. (Id. at ¶¶ 18, 23).

In the Motion to Dismiss, Defendant argues that “under New York law, Defendant’s

judgment lien [was] perfected at the time the judgment was entered on April 29, 2022 . . . .”

(Motion to Dismiss, p. 1). Defendant further argues that the “delivery of the execution to the

Sheriff merely continued the perfection” of the Judgement from April 29, 2022, and thus the

transfer falls outside of the 90-day preference window prescribed by Section 547. (Id.). Defendant

further argues that if the Lien constitutes a preferential transfer, it is nonetheless excepted from

avoidance under the “contemporaneous exchange exception” in Section 547(c) because the Lien

secured personal property that Defendant Kahlon had already acquired. (Id. at pp. 4-5).

As set forth in the Court’s Scheduling Order [Adv. Docket No. 11], at a pre-trial status

conference held on March 25, 2025, the Court “authorized the Debtor, as Plaintiff, to convert the

[M]otion to [D]ismiss to a motion for summary judgment” and required Plaintiff to file her motion

for summary judgment by April 1, 2025. The Defendant Kahlon was to file any objection to the

Summary Judgment Motion by April 8, 2025. (Docket No. 11). After Defendant failed to file an

objection by April 8, 2025, the Court further directed any objections to be filed no later than June

5, 2025, and any reply papers to be filed no later than June 13, 2025. (Id.).

In the Summary Judgment Motion, Plaintiff argues that there is no factual dispute relevant

to the Court’s determination of whether the Lien constituted a preferential transfer under Section

547, and that each element of Section 547 has been satisfied. (Summary Judgment Motion, p. 5).

Plaintiff argues that under the Bankruptcy Code, the “creation of a lien” (as prescribed by New

York law) constitutes a “transfer.” (Id. at ¶ 14). Arguing that the Lien is a transfer pursuant to

Section 547, Plaintiff asserts that summary judgment is warranted because: (1) the transfer

occurred within the 90-day window preceding the Petition Date; (2) the transfer was made for the

benefit of Defendant, enabling him to enforce the Judgment; 3) the transfer was made on account

of an antecedent debt (the Judgment) owed by Plaintiff to Defendant; (4) the transfer was made

while the Plaintiff was insolvent; and (5) the transfer enables Defendant to recover more “than if

the Transfer had not been made” as a now-secured versus an unsecured creditor. (Id. at ¶ 15).

Plaintiff also argues that Defendant’s reliance on the “contemporaneous exchange exception”

under Section 547(c) is misplaced because the transfer did not secure “new value” as part of a

contemporaneous contract or transaction. (Id. at ¶ 16).

In the Summary Judgment Opposition,2 Defendant asserts that Plaintiff has failed to meet

her burden to prevail on summary judgment because Plaintiff has not satisfied the elements for

avoidance of a transfer under Section 547(b). (Summary Judgment Opposition, p. 4). Defendant

argues that Plaintiff was solvent at the time of the transfer because the initial schedules filed in

Plaintiff’s Bankruptcy Proceeding showed assets exceeding liabilities by approximately

$4,600,000. (Id. at pp. 6-7). Consequently, Defendant claims that the burden shifted to Plaintiff

to show that she was insolvent at the time of the creation of the Lien, which Defendant argues

Plaintiff has not done. (Id.). Defendant also argues that Plaintiff failed to show that the transfer

enabled Defendant to receive more than in a Chapter 7 liquidation. (Summary Judgment

Opposition, p. 6). Specifically, Defendant argues that there is a lack of evidence as to: (1) the

value of the Shares; (2) the presence of any lien with equal or senior priority; and (3) the extent to

which the value of the Shares in the Property would be exempted under Section 522. (Id. at p. 6).

Defendant asserts that without such evidence, Plaintiff cannot establish that Defendant would

receive more as a secured creditor than an unsecured one in a Chapter 7. (See id.).

In the Reply, Plaintiff asserts that Defendant’s insolvency analysis failed to rely upon the

amended schedules filed by Debtor on June 24, 2025 (the “Amended Schedules”). (Plaintiff’s

Reply, p. 2); (Schedules A/B, Summary of Assets and Liabilities, Docket Nos. 10, 14). Plaintiff

2 On June 11, 2025, Defendant filed a Letter requesting an extension of time until June 13, 2025 to file an opposition

to the Motion for Summary Judgment. (Adv. Docket No. 13). The Summary Judgment Opposition was filed on

June 17, 2025.

also argues that courts have held that parties cannot rely on a “debtor’s schedules and the book

values listed therein” to rebut the presumption of insolvency. (Id. at ¶ 7, citing In re Big Apple

Volkswagen LLC, No. 11-11388, 2016 Bankr. LEXIS 834, at *33 (Bankr. S.D.N.Y. March 17,

2016)). Plaintiff asserts that the Amended Schedules reflect liabilities exceeding assets by over

$1.5 million. (Amended Schedules, Docket No. 97). In the Plaintiff’s Declaration, Plaintiff states

that the figures in the initial schedules contained significant errors with respect to a life insurance

policy and a legal malpractice claim filed by Plaintiff against third parties. (Plaintiff’s Declaration,

p. 1). With respect to the insurance policies, Plaintiff claims to have failed to account for the cash

surrender value of the two policies totaling $70,000, which is significantly less than the $2.5

million listed in the initial schedules. (Plaintiff’s Declaration, p. 2). With respect to the

malpractice claims, Plaintiff removed those that are still pending and thus are, arguably, of no clear

value or confirmed existence, as well as the sole resolved claim for which she has been “unable to

collect even one cent.” (Id.).

In response to Defendant’s argument that the Lien will not enable Defendant to receive

more than in a Chapter 7, Plaintiff asserts that “a secured or partially secured creditor fairs better

than a wholly unsecured creditor” where, as here, Plaintiff is insolvent. (Plaintiff’s Reply, p. 5).

V. LEGAL ANALYSIS & DISCUSSION

A. CONVERTING THE MOTION TO DISMISS TO A MOTION FOR

SUMMARY JUDGMENT

Defendant filed the Motion to Dismiss pursuant to Rule 12(b)(6) for failure to state a claim.

(Motion to Dismiss, p. 2). Plaintiff urged the Court to convert the Motion to Dismiss to one for

summary judgment under Rule 12(d). (Summary Judgment Motion, p. 4). Under Rule 12(d),

made applicable by Bankruptcy Rule 7012, a court must convert a motion to dismiss for failure to

state a claim into one for summary judgment if “matters outside the pleading are presented to and

not excluded by the court.” Rule 12(d); see also Shafir v. Continuum Health Partners, Inc., 57

F.Supp.3d 325, 327 (S.D.N.Y. 2014). Courts consider evidence “that goes beyond the four corners

of [a party’s] complaint” to satisfy the Rule 12(d) requirement. Abbott Labs v. Frank, No. 17-

6002, 2018 U.S. Dist. LEXIS 235216, at *3 (Bankr. E.D.N.Y. July 2, 2018). Rule 12(d) further

states that “[a]ll parties must be given a reasonable opportunity to present all the material that is

pertinent to the motion.” Rule 12(d). As discussed supra, the Court held a pre-trial conference on

March 25, 2025 and entered a Scheduling Order “authoriz[ing] the Debtor, as Plaintiff, to convert

the motion to dismiss to a motion for summary judgment and requir[ing] the Debtor to file her

summary judgment motion by April 1, 2025 . . . .” (Adversary Docket No. 11). Subject to the

Court’s direction at the pre-trial conference, Plaintiff filed the Summary Judgment Motion. (See

generally Adversary Docket). Defendant did not object to conversion of the Motion to Dismiss to

one for summary judgment at the March 25, 2025 pre-trial conference nor in Defendant’s late-filed

Summary Judgment Opposition. (See Summary Judgment Opposition, pp. 3-4).

B. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate where “the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.

Civ. P. 56(a).3 The burden is on the moving party to show that he or she is entitled to summary

judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). In analyzing a motion for

summary judgment, courts must view the evidence in the light most favorable to the non-moving

party and draw all reasonable inferences in favor of the non-moving party. Amnesty Am. v. Town

of West Hartford, 361 F.3d 113, 122 (2d Cir. 2004). Summary judgment is generally unwarranted

3 Rule 56 is made applicable in this adversary proceeding by Bankruptcy Rule 7056.

if a reasonable jury could return a verdict in favor of the non-moving party. See Anderson, 477

U.S. at 248.

C. SUMMARY JUDGMENT IS WARRANTED AS THERE IS NO GENUINE

ISSUE OF MATERIAL FACT REGARDING THE ELEMENTS OF THE

SECTION 547(b) CLAIM

Plaintiff argues that there is “no genuine dispute as to any material fact” and that she is

entitled to judgment as a matter of law because the elements of an avoidable preferential transfer

under Section 547(b) have been satisfied. (Summary Judgment Motion, ¶¶ 14, 15).

Under Section 547(b), a trustee may avoid, except as provided under subsection (c), any

transfer of an interest in property: (1) to or for the benefit of a creditor; (2) for or on account of an

antecedent debt owed by the debtor before the date of the transfer; (3) made while the debtor was

insolvent; (4) made within 90 days prior to the commencement of the bankruptcy case; and (5) that

enables the creditor to receive more than the creditor would otherwise have received in a Chapter

7 case, if the transfer had not been made, and if “such creditor received payment of such debt to

the extent provided by [Section 101].” See 11 U.S.C. § 547(b). In a Chapter 11 case, the party

bringing the preference action generally has the burden of proving each element by a

preponderance of the evidence. In re Roblin Indus., Inc., 78 F.3d 30, 34 (2d Cir. 1996). However,

Section 547(f) establishes a presumption of insolvency during the 90-day period preceding the

petition date, which shifts the burden to the party opposing avoidance. Id.; see also 11 U.S.C. §

547(f).

i. The Creation Of The Lien Constitutes A “Transfer”

The Court will first address whether a “transfer” took place for purposes of Section 547(b).

Plaintiff argues that “[t]he creation of a judgment lien is a transfer” pursuant to Section 101(54) of

the Bankruptcy Code, which defines “transfer” to include “creation of a lien.” (Summary

Judgment Motion, ¶ 15). Defendant asserts that the “Complaint fails to state a claim for a

preferential transfer” because no transfer occurred. (Motion to Dismiss, p. 3). Defendant argues

that the delivery of the Execution With Notice to Garnishee to the Sheriff on February 15, 2024

“did not constitute a ‘transfer’ of the Debtor’s property” because it “merely continued the

perfection of a pre-existing security interest” under Section 547(e)(1)(B). Defendant argues that

the State Court Judgment was perfected when it was entered on April 29, 2022. (Motion to Dismiss

at pp. 1, 3) (emphasis added).

Here, the Court agrees with Plaintiff that the transfer occurred on February 15, 2024,

when Defendant delivered the Execution With Notice to Garnishee to the Sheriff, thus

establishing the Lien. The Court disagrees with Defendant’s contention that perfection occurred

when the Judgment was entered on April 29, 2022. (Summary Judgment Motion, ¶ 14); (see

also Motion to Dismiss, p. 4). Section 547(e)(2) discusses when a “transfer” has occurred:

(A) at the time such transfer takes effect between the transferor and the transferee, if such

transfer is perfected at, or within 30 days after, such time, except as provided in

subsection (c)(3)(B);

(B) at the time such transfer is perfected, if such transfer is perfected after such 30 days;

(C) immediately before the date of the filing of the petition, if such transfer is not

perfected at the later of—

(i) the commencement of the case; or

(ii) 30 days after such transfer takes effect between the transferor and the

transferee.

11 U.S.C. § 547(e)(2).

The Bankruptcy Code includes the “creation of a lien” in the definition of “transfer.” 11

U.S.C. § 101(54)(A). Courts look to state law to determine whether a judgment or security

interest is perfected. See In re Ideal Mortgage Bankers, Ltd., 539 B.R. 409, 427 (Bankr.

E.D.N.Y. 2015) (determining that federal courts historically look to state law to determine

whether a creditor’s security interest or judgment lien is perfected); see also In re Marceca, 129

B.R. 369, 371 (Bankr. S.D.N.Y. 1991) (determining that a creditor’s interest in property of the

estate must be determined under New York law). Here, New York law thus determines when a

judgment lien is created or perfected for purposes of Section 547(e)(2). Under New York law,

“[w]here a judgment creditor has delivered an execution to a sheriff, the judgment creditor’s

rights in a debt owed to the judgment debtor or in an interest of the judgment debtor in personal

property, against which debt or property the judgment may be enforced, are superior to the extent

of the amount of the execution to the rights of any transferee of the debt or property.” N.Y.

C.P.L.R. § 5202(a). In short, New York law provides that a judgment creditor “remains an

unsecured creditor . . . until ‘execution’ is delivered to the sheriff . . . .” (Summary Judgment

Motion, ¶ 14); see In re Lucasa International, Ltd., 13 B.R. 596, 599 (Bankr. S.D.N.Y. 1981)

(“Under New York law, a judgment becomes a lien on personalty when the execution is

delivered to the sheriff.”) (internal citations omitted). In the present case, the “transfer” occurred

when the Judgment was “perfected” and the Lien was created under New York law. (Complaint,

¶ 15). As discussed supra, this occurred when Defendant Kahlon delivered the Execution With

Notice to Garnishee to the Sheriff on February 15, 2024. (Complaint, ¶ 15).

Defendant argues that perfection occurred earlier under Section 547(e) and New York

state law. (Motion to Dismiss, p. 4). The Court disagrees with Defendant. Defendant relies on

In re Pandeff, which supports Plaintiff’s argument that the creation of the Lien on February 15,

2024 under New York law is the relevant “transfer.” In In re Pandeff, the court determined that a

“judgment creditor must either execute on the judgment or obtain an enforcement order” to

create a lien under New York law. In re Pandeff, 201 B.R. 865, 874 (Bankr. S.D.N.Y. 1996)

(internal citation omitted). Additionally, Section 547(e) incorporates state law “perfection”

standards as the benchmark for determining when a “transfer” has occurred. See In re

Firstbase.io, Inc., 670 B.R. 694, 697-8 (Bankr. S.D.N.Y. 2025) (finding that N.Y. C.P.L.R. §

5202(a) establishes when a judgment creditor’s rights in personal property are considered

secured for purposes of Section 547(b)). In fact, Defendant appears to agree that the Lien was

perfected by asserting that the State Court Judgment “was simultaneously perfected for purposes

of Section 547(e)(1)(B) when the Defendant delivered the execution to the Sheriff,” on February

15, 2024 and “Defendant became the holder of rights with respect to Debtor’s cooperative

shares.” (Motion to Dismiss, p. 4). Defendant fails to justify his assertion that perfection

occurred earlier in April 2022. (Id.). Also, Defendant states that “on February 15, 2024,

Defendant delivered an [E]xecution [W]ith [N]otice to [G]arnishee to the Sheriff, thereby

creating a lien.” (Summary Judgment Opposition, p. 2) (emphasis added). Therefore, the Court

finds that the transfer took place on February 15, 2024 – when the Lien was created.

ii. Defendant Has Not Established That An Exception To Avoid The Transfer

Applies

Defendant argues that “[e]ven if the Court were to find that the delivery of the execution

to the Sheriff constituted a transfer . . . such transfer would be protected by the contemporaneous

exchange exception set forth in [Section] 541(c)(3).” (Motion to Dismiss, p. 4). Defendant asserts

that courts “have interpreted this exception to apply to situations where a creditor takes action to

perfect a security interest in property that the debtor has already acquired, so long as such action

is taken within the time frame prescribed by the statute.” (Motion to Dismiss, p. 4, citing In re

Lazarus, 478 F.3d 12, 18 (1st Cir. 2007)).

To the extent that the parties cite both Section 547(c)(1) and 547(c)(3), the Court notes that

the exceptions found in subsections (c)(1) and (c)(3) are distinct. Under Section 547(c)(1), the

party claiming the exception must show that the exchange was “contemporaneous” and involved

“new value.” Section 547(c)(3) protects a creditor who obtains a purchase money security interest

from having that interest avoided as a transfer. See Section 547(c)(1), (c)(3); see also In re

Reggiana Lighting USA Inc., No. 22-10436, 2025 Bankr. LEXIS 1526, at *7-8 (Bankr. S.D.N.Y.

June 26, 2025) (distinguishing subsections (c)(1) and (c)(3)).

Section 547(c)(1) provides that the trustee may not avoid a transfer:

(1) to the extent that such transfer was—

(A) intended by the debtor and the creditor to or for whose benefit such

transfer was made to be a contemporaneous exchange for new value given to the

debtor; and

(B) in fact a substantially contemporaneous exchange

Section 547(c)(1).

Section 547(c)(3) further provides that the trustee may not avoid a transfer:

(3) that creates a security interest in property acquired by the debtor—

(A) to the extent such security interest secures new value that was—

(i) given at or after the signing of a security agreement that contains

a description of such property as collateral;

(ii) given by or on behalf of the secured party under such agreement;

(iii) given to enable the debtor to acquire such property; and

(iv) in fact used by the debtor to acquire such property; and

(B) that is perfected on or before 30 days after the debtor receives

possession of such property;

Section 547(c)(3).

Defendant has the burden of proving the nonavoidability of a transfer under subsection (c).

11 U.S.C. § 547(g); see also In re Waterford Wedgwood USA, Inc., 508 B.R. 821, 827 (Bankr.

S.D.N.Y. 2014). Defendant has failed to establish that there was any “new value” as contemplated

under subsection (c)(1) or any security interest securing “new value” that was used to acquire

property that will constitute collateral under subsection (c)(3).

First, Defendant cites to In re Lazarus, in which the First Circuit vacated the district court’s

judgment that had been entered in favor of the mortgage holder and against the trustee who was

seeking to avoid the transfer, and remanded the case for further briefing related to Section 547(c).

(Motion to Dismiss, p. 4); see also In re Lazarus, 478 F.3d 12, 19 (1st Cir. 2007). Lazarus involved

the “contemporaneous exchange” exception under Section 547(c)(1). 478 F.3d at 17. Lazarus is

distinguishable from this case because the debtor in Lazarus entered into a refinanced mortgage

with a new creditor on “different terms than the original [mortgage] (or there would have been no

benefit to refinancing).” Id. at 16. The funds from the new mortgage were used to satisfy an

existing mortgage held by another creditor. Id. at 13. The First Circuit determined that the transfer

was “arguably . . . for new value” because the new loan was “used to pay off [the debtor’s] debt”

on the existing mortgage and the new loan offered better terms than the original mortgage. Id. at

17. In this case, Defendant did not extend a loan to Plaintiff, nor did Defendant provide anything

of new value; rather, Defendant secured its interest by perfecting the Judgment and creating the

Lien on February 15, 2024, which did not confer “new value.” (Complaint, ¶ 15); (see also

Summary Judgment Opposition, p. 2).

Second, as to Section 547(c)(3), Defendant failed to establish that this exception applies.

Section 547(c)(3) sets forth a multi-prong test for the purchase money security interest exception.

(Motion to Dismiss, pp. 4-5). Focusing on parts (iii) and (iv) of the multi-prong test, Defendant

argues that subsection (c)(3)(A) “provides that a trustee may not avoid a transfer ‘that creates a

security interest in property acquired by the debtor to the extent such security interest secures new

value that was given to enable the debtor to acquire such property, and in fact was used by the

debtor to acquire such property.’” (Id., quoting Section 547(c)(3)(A)). The “defense is only

applicable if the ‘transfer’ of a security interest is made to ‘secure’ the new value that is provided,

which means they must be part of the same contract or transaction.” See In re George G. Sharp,

Inc., No. 20-10590, 2022 WL 1714178, at *15 (Bankr. S.D.N.Y. May 25, 2022) (finding that

subsection (c)(1) and (3) do not apply when the security interest does not secure “new value” as

part of the same contract or transaction). As discussed supra, Defendant Kahlon did not provide

Plaintiff/Debtor with any “new value” in February 2024. (Motion to Dismiss, p. 5); see also In re

Reggiana Lighting USA Inc., 2025 Bankr. LEXIS 1526, at *22 (determining that movant must

successfully demonstrate that the lien secured new value). Indeed, there was no “new value” given

under Section 547(c)(3)(A)(i)-(iii), nor was there any new value that was in fact used by the Debtor

to acquire such secured property under Section 547(c)(3)(A)(iv). The Lien related to the State

Court Judgment, while the Shares had been purchased using a mortgage issued by Quick Borrow

Inc. (Amended Schedule D, Docket No. 97, p. 2). Nor was there any perfection of a security

interest “on or before 30 days after the debtor receive[d] possession” of any property acquired by

the debtor under Section 547(c)(3)(B).

Thus, Defendant has not met its burden to establish that any exception under Section

547(c)(1) or (c)(3) applies.

iii. The Transfer Was For The Benefit Of Defendant

Since the Court has found that the Lien was a transfer, and Defendant’s argument under

Section 547(c) fails, the Court will now address the elements under Section 547(b) for an avoidable

transfer.

The first element under Section 547 is whether the transfer was made “to or for the benefit

of a creditor.” 11 U.S.C. § 547(b)(1). A creditor is an “entity that has a claim against the debtor

that arose at the time of or before the order for relief concerning the debtor.” 11 U.S.C. §

101(10)(A). A “claim” is defined as any: “(A) right to payment, whether or not such right is

reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,

undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach

of performance if such breach gives rise to a right to payment, whether or not such right to an

equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,

undisputed, secured, or unsecured.” 11 U.S.C. § 101(5).

Here, Defendant became an unsecured creditor of Plaintiff after the State Court Judgment

for over $1.5 million was issued in Defendant’s favor on April 29, 2022 in a malpractice action

where Defendant prevailed. (See Bankruptcy Proceeding, Proof of Claim No. 17-1). Defendant

then perfected the Judgment, and created the Lien on February 15, 2024, which created a “right to

payment” owed by Plaintiff. (Statement of Undisputed Facts, ¶ 3). The Court agrees with Plaintiff

that the Lien enabled the Defendant to enforce the Judgment with respect to the Shares, which

Defendant does not dispute. (Summary Judgment Motion, ¶ 15); (see generally Summary

Judgment Opposition). Where an unsecured claim becomes a secured one, the lien benefits the

creditor to whom the obligation is owed. See In re Flanagan, 503 F.3d 171, 185-86 (2d Cir. 2007)

(noting that under Section 547(b) where an unsecured obligation is replaced by a secured

obligation, the payment is voidable as a preference to the extent of the collateral that was

transferred). Thus, since the Lien was for the benefit of Defendant (the secured creditor), this

element is satisfied.

iv. The Transfer Was On Account Of Antecedent Debt

The second element under Section 547 is whether the transfer was made for or on account

of an antecedent debt. 11 U.S.C. § 547(b)(2). A debt is considered “antecedent” if it was incurred

prior to the transfer. In re ContinuityX, Inc., 569 B.R. 29, 34 (Bankr. S.D.N.Y. 2017).

Here, the Lien was on account of an antecedent debt. (See Summary Judgment Motion, ¶

15). The “antecedent debt” is the State Court Judgment entered against Plaintiff/Debtor on April

29, 2022, almost two years prior to the creation of the Lien. (Complaint, p. 3, ¶ 14); (Motion to

Dismiss, ¶ 1 (“On April 29, 2022, Defendant obtained a judgment against the Debtor [Plaintiff] in

the amount of $1,503,013.70 in the Supreme Court of the State of New York.”)). Thus, Defendant

effectuated a transfer on account of the prior unsecured claim, the State Court Judgment.

(Statement of Undisputed Facts, ¶ 3).

Therefore, the Lien was on account of an antecedent debt under Section 547(b)(2).

v. Defendant Failed To Rebut The Presumption Of Insolvency Under

Section 547

The third element under Section 547 is whether the debtor-transferor was insolvent at the

time of the alleged preferential transfer. 11 U.S.C. § 547(b)(3). Insolvency is presumed during

the 90 days preceding the petition date. See 11 U.S.C. § 547(f); see In re Kossoff PLLC, No. 21-

10699, 2025 Bankr. LEXIS 1706, at *24 (Bankr. S.D.N.Y. July 18, 2025) (finding that the

opposing party failed to provide evidence to rebut the presumption under Section 547(f)). The

party challenging the presumption of insolvency bears the burden of proof and must “introduc[e]

some evidence that the debtor was not in fact insolvent at the time of the transfer.” See In re Ames

Dept. Stores, Inc., 470 B.R. 280, 283 (S.D.N.Y. 2012) (internal citations omitted).

Defendant argues that a genuine issue of fact exists as to Plaintiff’s insolvency on February

15, 2024 (when the Lien was created), and points to Plaintiff’s initial schedules filed in the

Bankruptcy Proceeding (which reflect assets exceeding liabilities). (Summary Judgment

Opposition, p. 5). Plaintiff argues that those schedules were filed when Debtor acted pro se,

contained inaccurate information, and were corrected in the Amended Schedules (which were

subsequently filed with the assistance of counsel). (Plaintiff’s Reply, p. 2, ¶¶ 4, 5); (Plaintiff’s

Declaration, pp. 1-2, ¶¶ 2-9).

The Court agrees with Plaintiff that there is a rebuttable presumption of insolvency that

Defendant has failed to overcome. The only information Defendant relied on to attempt to rebut

the presumption of insolvency was Debtor’s initial outdated schedules. (Summary Judgment

Opposition, pp. 5-6). Plaintiff asserts that the initial schedules were not accurate as to valuation.

(Plaintiff’s Reply, ¶ 8). Plaintiff’s Amended Schedules in the Bankruptcy Proceeding reflect that

Plaintiff’s liabilities ($2,836,833.79) far exceed the scheduled assets ($1,253,686.41). (Docket

No. 97, Amended Schedules); (see also Plaintiff’s Declaration, p. 3). As explained in her

declaration, Plaintiff had made several mistakes in compiling the initial schedules, including

mistakenly including the death benefit of two insurance policies, as opposed to the surrender value

(which is $0 for one policy and $70,000.00 for the other). (Plaintiff’s Declaration, pp. 2-3, ¶¶ 3-

5). Further, bankruptcy courts have held that rebutting the presumption of insolvency requires

evidence of value of assets at fair market value. See In re Ames Dept. Stores, Inc., 470 B.R. at 284

(upholding the bankruptcy court’s determination that a creditor failed to rebut the debtor’s

presumption of insolvency by relying on the book value listed on schedules rather than the fair

market value of debtor’s assets and therefore the creditor had failed to prove solvency during the

preceding 90 days).

In In re Ames, the party rebutting the presumption had only relied on the debtor’s

“schedules of assets and liabilities” that reflected the book value, rather than anything establishing

the fair market value of the assets; this reliance was “deemed insufficient to rebut the presumption

of insolvency.” Id. at 285 (internal citations omitted). Defendant has not provided any support

for the argument that the assets listed on the Amended Schedules are not valued properly. (See

Summary Judgment Opposition, p. 6). Instead, Plaintiff has supported the value of assets listed

on the Amended Schedules by including in Plaintiff’s Declaration a valuation as to such assets.

(Plaintiff’s Reply, ¶¶ 9-12). In Plaintiff’s Declaration, Plaintiff states that she initially failed to

account for the cash surrender value of two insurance policies totaling $70,000, significantly less

than the $2.5 million listed in the initial schedules. (Plaintiff’s Declaration, p. 2). Also, Plaintiff

establishes that the malpractice claims listed are of essentially no clear value. (Id.). Defendant

has thus not presented evidence to rebut the presumption that Plaintiff/Debtor was insolvent on

February 15, 2024 based on the Amended Schedules. (See Adversary Case Docket); see also In

re Coco, 67 B.R. 365, 371 (Bankr. S.D.N.Y. 1986) (“[I]t is incumbent upon the transferee to come

forward with some evidence to rebut the presumption”).

vi. The Transfer Occurred Within 90 Days Before The Petition Date

The fourth element under Section 547(b) is whether the transfer was “made on or within

90 days before the petition date; or between ninety days and one year before the date of the filing

of the petition, if such creditor at the time of such transfer was an insider.” 11 U.S.C. § 547(b)(4).

Here, the transfer was “made on or within 90 days” before the Petition Date. The parties

do not dispute that Defendant delivered the Execution with Notice to Garnishee to the Sheriff on

February 15, 2024. (Summary Judgment Motion, Exhibit A); (Summary Judgment Opposition, p.

2). As discussed supra, Section (V)(C)(i), the transfer thus occurred on February 15, 2024 when

the State Court Judgment was secured and the Lien was created. The Petition Date (April 19,

2024) was sixty-four days after the creation of the Lien, and thus the transfer occurred within the

prescribed 90-day window. (See Docket No. 1).

vii. The Transfer Enabled Defendant To Receive More Than He Otherwise

Would

The fifth element under Section 547(b) is whether the transfer enabled the creditor to

receive more than the creditor would have received if the case were a Chapter 7 case, if the transfer

had not been made, and if such creditor had “received payment of such debt to the extent provided

by the provisions of this title.” 11 U.S.C. § 547(b)(5). In making this determination, courts must

“construct a hypothetical chapter 7 case and determine the percentage distribution that the

defendant would have received on the petition date.” In re Teligent Inc., 380 B.R. 324, 339 (Bankr.

S.D.N.Y. 2008). In In re Teligent Inc., the court found that this element is satisfied “whenever the

plaintiff shows that the creditor would receive less than 100% in a hypothetical chapter 7

distribution.” Id. Courts should not focus on other sources of recovery available to a transferee,

but rather what such transferee would hypothetically receive vis-à-vis other creditors within such

creditor’s particular class. See In re Pameco Corp., 356 B.R. 327, 337 (Bankr. S.D.N.Y. 2006)

(citing Palmer Clay Products v. Brown, 297 U.S. 227, 229 (1936)).

Defendant argues that Plaintiff has offered no evidence that Defendant receives more by

enforcing the Lien than Defendant would receive as an unsecured creditor in a Chapter 7 case.

(Summary Judgment Opposition, p. 6). Specifically, Defendant asserts that there is no evidence

“regarding the value of the [] Shares subject to the Lien, the existence or amount of any liens senior

to Defendant's Lien (e.g., a loan secured by the [] Shares), or the value of the Debtor's available

exemptions that might apply to the [] Shares.” (Id.).

However, the Court finds that under 547(b)(5) the Lien enables Defendant to receive more

than Defendant would receive in a Chapter 7 liquidation (on account of its Judgment) than if the

transfer had not been made, as Defendant’s security interest enables him to recover more than he

would receive from a distribution among a class of unsecured creditors. (See Summary Judgment

Motion, ¶ 15). The Amended Schedules in the main case disclose a total value of $700,000 for the

Shares, of which $179,975.00 is claimed as exempt. (Amended Schedules, Docket No. 97). The

same schedules also disclose the presence of one other lien on the Shares, a “mortgage” in the

amount of $400,000 held by Quick Borrow Inc. (Amended Schedules, Docket No. 97). After

deducting the exemption and Quick Borrow’s lien, $120,025.00 of unexempted equity remains,

and the Lien could attach to that value (which would make Defendant’s claim secured by at least

that amount). (Amended Schedules, Schedule C, Schedule D). Thus, although Defendant is

significantly under-secured, he is nonetheless secured to some degree, placing $120,025.00 of his

claim recoverable at one hundred cents on the dollar above any general unsecured claim. And,

since Plaintiff’s liabilities exceed the value of the assets, a hypothetical Chapter 7 would yield less

than a 100% recovery for general unsecured creditors. Without the Lien, Defendant would receive

less than one hundred cents on the dollar with respect to his entire claim in a Chapter 7 case. With

the Lien, Defendant would receive one hundred cents on the dollar with respect to at least a portion

of the claim. Thus, Defendant would receive more as a secured creditor in a hypothetical Chapter

7 based on the value of the Shares.

Therefore, the last element of Section 547(b) is satisfied.

VI. CONCLUSION

In conclusion, for the reasons set forth above, the Court finds that the Motion to Dismiss

[Adv. Docket Nos. 5, 6] is DENIED, and the Summary Judgment Motion [Adv. Docket No. 8] is

GRANTED.

IT IS SO ORDERED.

Dated: New York, New York

October 21, 2025 /S/ John P. Mastando III______________

HONORABLE JOHN P. MASTANDO III

UNITED STATES BANKRUPTCY JUDGE