Bankruptcy Preferences - A Landmine for Businesses

Your business gets notice ffrom a Chapter 11 bankruptcy trustee. You recognize the name of the case as a business you did business with. Then you see that the bankuptcy trustee wants money the business paid to you. At this point, hope your business's lwyer knows something about preferences but admittedly a preference claim is hard to beat.

I suggest reading What to Do When You Receive A Bankruptcy Preference Demand Letter from New Jersey Law Blog. Being New Jersey does not count against it. Remember bankruptcy law is federal law. The writer does the best job of clearly and simply describing preferences and what to do about them.

What is Preference?
A potential preference is a payment received from a debtor, made within 90 days of the bankruptcy filing. Bankruptcy Code section 547(b) allows a bankruptcy trustee or debtor-in-possession to avoid this payment, if the transfer was to or for the benefit of a creditor on account of an antecedent debt while the debtor was insolvent. When Congress enacted the Bankruptcy Code, the policy behind preferences was to level the playing field for all creditors by not allowing a creditor to receive more than it would have within the debtor’s bankruptcy case.
I would add two things. First, that with so many legal matters a good preference case comes from preventive maintenance by the business.

Second, if you have a preference case in Indiana and need legal counsel then give me a call.