By Scott W. Lee, JD, CCE, NACM Business Credit Services
Preferential Transfers: The bankruptcy code allows the trustee (or debtor in possession; “DIP”) to avoid and recover payments made to creditors during the 90 period prior to the filing of bankruptcy. The period is one year if the recipient is an insider. section 547 of the bankruptcy code, in essence, defines a preferential transfer as:
i. payment on an antecedent debt
ii. made while the debtor is insolvent
iii. during the 90 period prior to the filing of the bankruptcy petition
iv. that allows the creditor to receive more than it would have through the bankruptcy proceeding.
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Defenses to a Claim of Preference: There are a number of potential defenses to a claim that a payment received from the debtor is a preference. Usually a demand for payment will be sent to the creditor before an action is commenced within the bankruptcy to obtain a return of the funds. Whether a demand is received or whether service of a complaint is received, there are defenses that must be explored before simply writing a check for the amount claimed. Here is a list of the major defenses. You may want to consult knowledgeable counsel for details or to explore other possibilities depending upon the amount involved.