By: MaryBeth C. Allen
St. John's Law Student
American Bankruptcy Institute Law Review Staff
In a case of first impression, a New York bankruptcy court[1] suggested that a reduced prison term could be considered new value for purposes of the 11 U.S.C. § 547(c)(1) preference defense.[2] In Citron, the debtor pled guilty to numerous felonies after entering into a criminal plea bargain agreement, which included a $75,000 fine and a reduced prison term.[3] The debtor paid the $75,000.00 fine two days before filing chapter 13.[4] There was no dispute that the payment was preferential,[5] but the court dismissed the State’s motion to dismiss based on the affirmative defense of new value under section 547(c)(1), not because it was inapplicable, but for lack of evidence of value.[6]