  United States Bankruptcy Appellate Panel
                            FOR THE EIGHTH CIRCUIT
                                 _____________

                              No. 97-6080EMSL
                                ____________

In re:                                                *
                                                *
SHARON DENISE WADE,                    *
                                       *
      Debtor.                          *
                                       *
SHARON DENISE WADE,                    *
                                       *   Appeal from the United States
      Plaintiff-Appellant,                      *    Bankruptcy Court for
the
                                       *   Eastern District of Missouri
            v.                         *
                                       *
MIDWEST ACCEPTANCE                     *
CORPORATION, and PATRICIA A.           *
FLOOD,                                          *
                                       *
      Defendants-Appellees,                *
                                       *
      and                              *
                                       *
A. THOMAS DEWOSKIN,                    *
                                       *
      Defendant-Trustee.                        *
                                    *
                               ____________
                      Submitted:     February 18, 1998.

                            Filed:   April 6, 1998.
                               ____________

Before KOGER, Chief Judge, KRESSEL, and DREHER, Bankruptcy Judges.

DREHER, Bankruptcy Judge.
        Appellant, Sharon Denise Wade (Wade), appeals from a decision of the bankruptcy
court which denied her lien avoidance as to three wage payments which had been garnished
by and paid over to Appellee, Midwest Acceptance Corporation (Midwest), prior to the date
she filed her bankruptcy petition and further determined that such wage payments were not
preferences. For the reasons stated below, we reverse and remand.

                                          FACTS

       On August 23, 1994, Midwest obtained a judgment against Wade in Missouri state
court for $4,462.32, plus costs and accruing interest. In pursuit of execution, at Midwest's
request, the state court issued a writ of garnishment and execution. The writ, along with the
garnishment summons, were served on Wade's employer on August 21, 1996. The return
date on the writ was November 11, 1997.

      Between September 22, 1996, and December 4, 1996, Wade's employer made six
payments into court in response to the writ. Three payments were made by Wade's
employer, received by the court, and disbursed to Midwest on the following dates:
      Amount        Employer's Check        Received by Court       Paid to Midwest

       $158.24       09/23/96                09/26/96                  10/08/96
       $150.33       10/07/96                10/10/96                  10/18/96
       $156.23       10/21/96                10/31/96                  11/13/96
       $465.80

       On November 22, 1996, Wade filed a petition for relief under Chapter 13 of the
United States Bankruptcy Code. She voluntarily converted the case to one under Chapter
7 on December 8, 1996. The remaining three payments were made by Wade's employer,
received by the court, and disbursed to Midwest on the following dates:
       Amount        Employer's Check      Received by Court        Paid to Midwest

       $139.40       11/04/96                11/12/96                  12/03/96
       $157.59       11/19/96                11/25/96                  12/06/96
       $151.69       12/04/96                12/10/96                  01/08/97
       $448.68


                                             2
         Wade sought to exempt all six payments under Missouri law, no objections to such
 claim to exemption were filed, and Wade's Chapter 7 bankruptcy trustee commenced no
 action to recover any of the payments. Wade then commenced an adversary proceeding
 against several parties,1 including Midwest, seeking twofold relief. First, Wade sought to
 avoid Midwest's lien using the lien avoidance provisions set forth in § 522(f)(1)(A) of the
 Bankruptcy Code. Alternatively, Wade sought to recover all six payments as preferential
 prepetition or wrongful postpetition transfers under §§ 522(h), 547, 549 and 550 of the Code.
 The parties stipulated to the relevant facts and submitted the case for determination by
 summary judgment on these two causes of action. With respect to the preference action,
 Midwest did not plead, allege or try any defenses that may have been available to it under
 § 547(c) of the Code, electing instead to assert that Wade could not establish the necessary
 elements of a preference.

         The bankruptcy court ruled that Wade was entitled to avoid Midwest's lien under §
 522(f)(1)(A) as to the last, but not as to the first, three payments. The court reasoned, in
 essence, that, in order to effect lien avoidance under § 522(f)(1)(A), the debtor must have an
 interest in property at the time the bankruptcy petition was filed. The court further held that
 on November 22, 1996, Wade had no interest in the first three payments, but did have an
 interest in the fourth and fifth payments. The court also ruled that Wade either had an
 interest in the sixth payment or such payment, constituting postpetition earnings, was not
 property of the estate under 11 U.S.C. § 541(a)(6). Accordingly, Wade was awarded
 judgment for the last three payments in the sum of $448.68 and Midwest was required to pay
 that sum to Wade. The court then held that Midwest had a lien on the first three payments
 as of the date the writ of garnishment was served, the lien had attached outside the ninety day
 preference period, and Wade had, therefore, not shown that Midwest enhanced its position
 during the ninety day preference period by receiving such payments. Midwest was,
 therefore, not required to pay back the first three payments.




       1
         Wade sued Midwest; its attorney, Patricia Flood; and the Chapter 7 Trustee, A. Thomas
Dewoskin. The Trustee has not been involved in the proceedings and no judgment was entered
against him. No judgment was entered against Ms. Flood, who could only be derivatively liable, but
she is an Appellee in the case also.

                                                3
         Wade has filed this appeal from that portion of the judgment denying her lien
 avoidance on the first three payments and rejecting her claim that those three payments were
 preferences avoidable under § 547 of the Bankruptcy Code. Midwest has not cross-appealed
 as to the last three payments and the parties agree that the bankruptcy court's decision with
 respect to those payments is not challenged in this appeal.

         As for the bankruptcy court's decision regarding the first three payments, Wade asserts
 that the court erred when it determined that, because Wade had no interest in the first three
 payments, she could not avoid Midwest's statutory garnishment lien as to such payments.
 She also argues that the bankruptcy court erred in holding that the first three payments were
 not preferential because one of the elements of a preference, improvement in position, had
 not been established.

                                            DECISION

       We hold that the bankruptcy court erred in its determination that the first three
 payments were not preferential. Accordingly, we need not address the question of whether
 the Debtor was entitled to lien avoidance.2

 I.      STANDARD OF REVIEW
         The bankruptcy court in this case granted summary judgment in favor of Midwest
 with regard to the first three payments garnished by Midwest. We review the bankruptcy
 court's decision de novo. Kunkel v. Sprague Nat'l Bank, 128 F.3d 636, 640 (8th Cir. 1997);
 Tudor Oaks Ltd. Partnership v. Cochrane (In re Cochrane), 124 F.3d 978, 981 (8th Cir.
 1997); Waugh v. I.R.S. (In re Waugh), 109 F.3d 489, 491 (8th Cir. 1997). Thus, we will
 affirm only if, assuming all reasonable inferences favorable to the nonmoving party, the
 record on appeal demonstrates "that there is no genuine issue as to any material fact and that
 the moving party is entitled to judgment as a matter of law." FED. R. BANKR. P. 7056(c);




       2
       By failing to address the lien avoidance issue, we do not mean to suggest in any way that the
bankruptcy court decided this issue incorrectly. We simply do not need to reach the point.

                                                 4
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 249-50 (1986).

II.    ELEMENTS OF A PREFERENCE: RECOVERY BY DEBTOR
       Section 547 of the Bankruptcy Code provides:
              (b)    Except as provided in subsection (c) of this section, the trustee
       may avoid any transfer of an interest of the debtor 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 such transfer was made;
                     (3)     made while the debtor was insolvent;
                     (4)     made--
                             (A) on or within 90 days before the date of the filing
                     of the petition; or
                             (B) 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; and
                     (5)     that enables such creditor to receive more than such
              creditor would receive if--
                             (A) the case were a case under chapter 7 of this title;
                             (B) the transfer had not been made; and
                             (C) such creditor received payment of such debt to the
                     extent provided by the provisions of this title.

11 U.S.C. § 547(b) (1994). According to this section, any prepetition transfer is preferential
and avoidable if five elements of proof are present. The transfer must be made 1) to or for
the benefit of a creditor; 2) for or on account of antecedent debt; 3) while the debtor was
insolvent; 4) to a noninsider on or within ninety days of the filing of the bankruptcy case;
and, such transfer must 5) result in the creditor receiving more than the creditor would have
received in a hypothetical liquidation in a Chapter 7 case.

       Section 101 of the Bankruptcy Code defines a "transfer" as "every mode, direct or
indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with
property or with an interest in property . . . ." Id. § 101(54). Section 547(e) defines when
a transfer is made. For purposes of this appeal the focus is on § 547(e)(2)(A) and (B) and
§


                                              5
 547(e)(3). Subsections 547(e)(2)(A) and (B) provide that a transfer is made at the time the
 transfer takes effect between the parties if the transfer is perfected at or within ten days after
 such time, or upon perfection, if not so perfected within ten days.3 Section 547(e)(3)
 cautions, however, that, for purposes of preference analysis, a transfer is not made "until the
 debtor has acquired rights in the property transferred." Id. § 547(e)(3).

         Ordinarily, only the trustee may bring an action to avoid a prepetition transfer.
 However, § 522(h) of the Bankruptcy Code, when read in conjunction with § 522(g), allows
 a debtor to avoid prepetition preferential transfers for the benefit of the debtor if the property
 would have been exempt and was not voluntarily transferred, and if, further, the trustee has
 not sought such avoidance.4 See LaBarge v. Benda (In re Merrifield), 214 B.R. 362, 365
 (B.A.P. 8th Cir. 1997). As stated earlier, all three such requirements are met in this case; the
 parties agree that the garnished wages are exempt, that they were transferred involuntarily,


        3
         In the case of purchase-money security transactions, a secured creditor is given a twenty-day
grace period from the date the debtor receives possession of the collateral in which to perfect its
interest. See 11 U.S.C. § 547(c)(B), (e)(3)(A) (1994).
        4
         Subsections (g) and (h) of § 522 provide:

                (g) Notwithstanding sections 550 and 551 of this title, the debtor may exempt
        under subsection (b) of this section property that the trustee recovers under section
        510(c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that the debtor could
        have exempted such property under subsection (b) of this section if such property had
        not been transferred, if--
                         (1)     (A) such transfer was not a voluntary transfer of such property
                by the debtor; and
                                 (B) the debtor did not conceal such property; or
                         (2) the debtor could have avoided such transfer under subsection (f)(2)
                of this section.
                (h) The debtor may avoid a transfer of property of the debtor or recover a
        setoff to the extent that the debtor could have exempted such property under
        subsection (g)(1) of this section if the trustee had avoided such transfer, if--
                         (1) such transfer is avoidable by the trustee under section 544, 545,
                547, 548, 549, or 724(a) of this title or recoverable by the trustee under
                section 553 of this title; and
                         (2) the trustee does not attempt to avoid such transfer.

Id. § 522(g), (h).

                                                     6
 and that they were not the subject of an avoidance action by the trustee. Thus, Wade has
 standing to seek avoidance of the prepetition transfer.

 III.    BANKRUPTCY COURT ANALYSIS
         The bankruptcy court determined that the three payments made, first, by the employer
 to the court, and, then, by the court to Midwest, met the first four criteria of preference.
 These payments were made to or for the benefit of Midwest, for or on account of Wade's
 antecedent debt to Midwest, within ninety days prior to the filing of the bankruptcy petition,
 and while Wade was presumptively insolvent.5 Referring to and relying upon Missouri
 garnishment law, however, the bankruptcy court focused on the transfer which occurred
 when the writ of garnishment was served on August 21, 1996, a date more than ninety days
 prior to the bankruptcy filing. Because the bankruptcy court read Missouri's garnishment law
 to provide the garnishor with a continuing lien on all wages earned from the date of service
 of the writ of garnishment until the return date on the writ or the service of the garnishee's
 answer, the bankruptcy court held that the fifth element of a preference had not been met.
 According to the bankruptcy court, the payments made by the garnishee to the court and by
 the court to Midwest did not result in Midwest's improving its position because Midwest was
 a creditor holding a lien which attached as to all three payments outside the preference
 period. This was, in the court's view, as a result of the service of the garnishment summons
 outside the ninety day preference period. In reaching this conclusion, the bankruptcy court
 correctly noted that ordinarily payments made to a lien creditor fully perfected prior to the
 start of the preference period do not improve the creditor's position and are not preferential
 even if such payments occur within the preference period.

        Curiously, the bankruptcy court made reference to Bankruptcy Code § 547(e)(3), but
 stated that it had "no evidence or stipulation from which to determine whether Debtor's
 wages were earned inside or outside the preference period." In a later order denying Wade's
 motion for amended findings, the bankruptcy court rejected Wade's request that the



        5
         Section 547(f) provides that, "[f]or the purposes of this section, the debtor is presumed to
have been insolvent on and during the 90 days immediately preceding the date of the filing of the
petition." Id. § 547(f).

                                                   7
bankruptcy court make factual findings or allow additional evidence regarding when the
wages were earned, stating, "[a]lthough the stipulation of facts submitted by the parties did
not expressly address this issue, it is a determination which can easily be made by reasonable
persons."

IV.    MISSOURI LAW
       The bankruptcy court correctly interpreted Missouri garnishment law. Missouri's
garnishment statutes, like garnishment statutes in many states, provide that service of the
notice of garnishment
       shall have the effect of attaching all personal property, money, rights, credits,
       bonds, bills, notes, drafts, checks or other choses in action of the defendant in
       the garnishee's possession or charge, or under his control at the time of the
       service of the garnishment, or which may come into his possession or charge,
       or under his control, or be owing by him, between that time and the time of
       filing his answer . . . .

MO. ANN. STAT. § 525.040 (West Supp. 1998) (emphasis added). Missouri Rules of Court
further provide that "The service of notice of garnishment and summons attaches the property
subject to garnishment in the garnishee's possession or charge or under the garnishee's
control between the time the notice is served and the time of the return date on the writ of
garnishment." MO. R. CIV. P. 90.06.

        Thus, under Missouri law, service of the garnishment summons and writ creates a lien
in the garnishor's favor which attaches to wages owing on the date of service and any which
accrue thereafter until the return or answer date. Ferneau v. Armour & Co., 303 S.W.2d 161,
166 (Mo. App. 1957); Ralston Purina Co. v. King, 101 S.W.2d 734, 735 (Mo. App. 1937);
Bambrick V. Bambrick Bros. Constr. Co., 132 S.W. 322, 324 (Mo. App. 1910); Dinkins v.
Crunden-Martin Woodenware Co., 73 S.W. 246, 248 (Mo. App. 1903). The lien created by
such service is superior to later perfected security interests. Vittert Constr. and Inv. Co. v.
Wall Covering Contractors, Inc., 473 S.W.2d 799, 804 (Mo. App. 1971) (lien created by
service of the garnishment summons is superior to later-assessed federal tax lien); M. R.
Dugan v. Missouri Neon & Plastic Adver. Co., 472 F.2d 944, 952 (8th Cir. 1973) (same).
Under Missouri law, the lien is a continuing one. That is, it attaches to property held by the



                                              8
 garnishee and owing to the debtor on the date the garnishment writ is served and to property
 coming into the garnishee's possession or control thereafter. Missouri law also specifically
 provides that debts not yet due may be attached, but not executed on, until they become due.
 MO. ANN. STAT. § 525.260 (West 1953).

        Plainly, then, under Missouri law the service of the garnishment summons on August
 21, 1996, created a perfected lien on all wages then owing or owing at any time between said
 date and November 11, 1997. If bankruptcy had not intervened, Midwest would have had
 a garnishment lien on the Debtor's wages earned between those two dates, perfected and
 attached as of August 21, 1997, on a retroactive basis as wages were subsequently earned.6
 The lien would have had priority over any lien or security interests attaching thereafter.

 V.     FEDERAL LAW: SECTION 547(e)(3)
        As stated earlier, § 547(e)(3) furnishes a caveat to the general rule that a transfer
 becomes effective for preference purposes at the time it is effective between the parties. The
 Code prevents a transfer which might otherwise have been considered to have occurred when
 a continuing lien is created from actually being effective for preference analysis "until the
 debtor has acquired rights in the property transferred." 11 U.S.C. § 547(e)(3). Where wages
 are involved this means that no transfer occurs until the wages are earned. And, thus, if
 future wages are subject to a garnishment lien arising outside the ninety day preference
 period, but are earned within that ninety day period, the lien does not attach until the wages
 are earned.

        It is fundamental that state law controls the underlying rights parties may have to
 property, contracts, and the like. See, e.g., Butner v. United States, 440 U.S. 48, 55 (1979)



       6
         Subject, of course, to Missouri's exemption law for earned wages. Under Missouri law, the
maximum amount of an individual's weekly earnings that may be subject to garnishment may not
exceed: (a) twenty-five percentum, or, (b) the amount by which his aggregate earnings for that week,
after deduction from those earnings of any amounts required to be withheld by law, exceed thirty
times the federal minimum hourly wage prescribed by section 6(a)(1) of the Fair labor Standards Act
of 1938 in effect at the time the earnings are payable, or, (c) if the employee is the head of a family
and a resident of Missouri, ten percentum, whichever is less. See MO. ANN. STAT. § 525.030 (West
Supp. 1998).

                                                   9
(stating that "property interests are created and defined by state law"). Notwithstanding this
principle, it is also clear that "federal law is preemptive in bankruptcy." Anderson v. DeLong
(In re Chicora Group), 99 B.R. 715, 716 (Bankr. D. S.C. 1988) (citing Waldschmidt v. Ford
Motor Credit Co. (In re Murray), 27 B.R. 445 (Bankr. M.D. Tenn. 1983)). Thus, while state
law may create certain rights to property, federal preference law may act to alter those rights.
The most recent and important example of this axiom is the Supreme Court's decision in
Fidelity Financial Services, Inc. v. Fink, 118 S. Ct. 651 (1998). In Fidelity, the debtor
purchased a new car with funds provided by Fidelity. She gave Fidelity a note secured by
the car, but Fidelity failed to perfect its security interest within the twenty-day time limit of
§ 547(c)(3)(B). Missouri law deemed perfection of a security interest to have occurred on
the date of delivery, if all the necessary papers were recorded within thirty days of delivery.
The Supreme Court held that perfection must occur within 20 days as set forth in §
547(c)(3)(B), regardless of Missouri law on the subject. Fidelity resolved a long-standing
split in the courts on the question of whether state law deemed perfection could trump the
federal statutory definition found in § 547(c)(3)(B). See 118 S. Ct. at 653 n.2. The Court
held, importantly, that state perfection law yields to federal preference law where the two
are in conflict. See id. at 656.

        The analysis is strengthened by reference to a leading commentary which addresses
this precise question:
                Although the section 547(e)(3) caveat is aimed primarily at UCC
        Article 9 floating liens, application of the caveat is not limited to them. It
        applies to every kind of transfer, including involuntary transfers of the debtor's
        property. Suppose, for example, that C wins a judgment against D and gets a
        continuing garnishment against D's employer. The garnishment first takes
        effect when the writ of garnishment is served on the employer. At that time
        a lien on D's wages attaches in favor of the garnishing creditor. Suppose, also,
        that the garnishment is a continuing garnishment, that is, the lien affects wages
        thereafter earned by D until the garnishment expires by law or by the terms of
        the writ. The garnishment may continue until the creditor's judgment is
        satisfied.

              Service of the writ occurred, and thus the garnishment lien initially
       arose, outside of the preference period. The lien is nevertheless preferential



                                               10
to the extent that the lien spreads to the sums that D earns during the preference period. The
reason is that D does not acquire rights to her wages until she earns them. Thus, because of
the section 547(e)(3) caveat, any transfer of her wages, including a transfer to a creditor by
way of a continuing garnishment, cannot occur until the wages are earned or later,
notwithstanding that the continuing lien of garnishment that automatically attaches to the
wages as soon as she earns them predates the preference period.

1 DAVID G. EPSTEIN ET AL., BANKRUPTCY § 6-15, at 553-55 (1992) (footnotes omitted). The
authors acknowledge case authority to the contrary but view such cases as "analytically
flawed" because they base their analysis on a view that a continuing garnishment may be
analogized to a voluntary assignment of a right arising in the future under an executory
contract; i.e., viewing a continuing garnishment "as effecting an existing, albeit contingent,
right to unearned wages:"
        First, the argument presupposes that this common-law theory regarding the
        assignment of rights under executory contract applies to garnishment, and
        further assumes that the thing is not displaced, in bankruptcy preference cases,
        by section 547(e)(3).

               Second, even if applicable, the theory must be applied consistently with
       the section 547(e)(3) caveat. The language of the section equates the time of
       transfer with the time the debtor gets rights "in the property transferred."
       Although an employee may have a right to receive wages, i.e., money, if she
       continues working, and although that executory contract right may be
       transferred to her creditor when the garnishment lien is first effective, the
       employee obviously gets no rights, as against her employer, to money that the
       employee earns, until the employee earns it. This money, i.e., earned wages,
       is the object of our concern here, that is, earned wages or money is the
       property actually transferred.

              Because this money is the property transferred, and because the debtor
       acquires no rights to it until she earns it, there can be no transfer of wages, for
       preference purposes, until the wages are earned. Thus, wages earned during
       the preference period are transferred then despite their being subject to a
       continuing garnishment that pre-dates the period.

Id. at 556 (footnotes omitted) (emphasis in original).




                                               11
       We think this reasoning sound. It fully comports with the literal language of §
547(e)(3), see United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989), and it is
consistent with the recent Supreme Court decision in Fidelity. Simplistically stated, state
nonbankruptcy law does determine when a transfer is effective between the parties and
against third persons, and also when the debtor acquires rights in the property. But, federal
law, namely the caveat provided by § 547(e)(3), determines precisely when a transfer is
made for purposes of preference analysis.

        The bankruptcy court relied heavily on the case of In re Wilkinson, 196 B.R. 311
(Bankr. E.D. Va. 1996). While Wilkinson was correctly decided and well-reasoned, the
bankruptcy court's reliance was misplaced. Wilkinson is entirely distinguishable from the
case at hand. In Wilkinson, as in this case, the garnishment summons and writ were served
more than ninety days prior to the filing; payment to the garnishor was made within the
preference period. Virginia, like Missouri, grants a garnishor a lien on all funds that the
debtor is entitled to receive from the garnishee on the date the garnishment is served and all
funds to which the debtor becomes entitled prior to the return date on the summons. The
Wilkinson court correctly noted two "conceptually distinct transfers;" one which occurred
when the garnishment summons was served and one which occurred when the wages were
paid to the garnishor. Id. at 319. The court held that the second transfer, occurring within
the ninety day preference period, was not preferential because payments were made on a
fully secured claim which had been created outside that time frame. The distinguishing
feature in Wilkinson, and one emphasized in the court's analysis, however, was the fact that
all payments made to the garnishor during the ninety day preference period were wages that
had been earned before ninety days prior to the bankruptcy filing. Using precisely the
analysis we use here, and referencing § 547(e)(3) in particular, the Wilkinson court found
no preference. It did, however, make clear that its conclusion would have been different if
the wages had been earned during the preference period. Citing Mayo v. United Services
Automobile Association (In re Mayo), 19 B.R. 630, 632-33 (E.D. Va. 1981), which itself
quoted Cox v. General Electric Credit Corp. (In re Cox), 10 B.R. 268 (Bankr. D. Mo. 1981),
the Wilkinson court emphasized that "a payment of the garnishment attributable to wages
earned by the debtor within ninety days of the filing of a bankruptcy petition is a preferential
transfer to a judgment creditor," and distinguished such a case from one where payment was


                                              12
made for wages earned and subjected to a garnishment summons wholly outside the ninety
days. Id. at 320.

        Accordingly, we conclude that a garnishment of wages earned within the ninety day
preference period is avoidable by the Debtor, but that a garnishment of wages earned outside
that ninety day time frame is not. Attachment of a lien on garnished wages earned within the
ninety day preference period is, thus, a preferential transfer. Because the record does not
evidence when the three wage payments were earned, and particularly because appellant
sought and was denied the opportunity to develop that record, we reverse and remand with
instruction that the bankruptcy court determine when the wages on the first three payments
were earned and whether a material fact issue exists on the question and that it enter a
judgment or decision based on such determination.

       Accordingly, we reverse and remand to allow the bankruptcy court to take further
action consistent with this decision.

       A true copy.

              Attest:

                            CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR
                            THE EIGHTH CIRCUIT




                                            13
