Advantage to Creditor: Understanding Preference Actions and Available Defenses


For many lawyers, knowledge of bankruptcy law is limited to breaking the bad news to creditor clients that they are not likely to get paid by a bankrupt debtor. The explanation I give my commercial clients for their misfortune: it's in the United States Constitution, Article I, section 8, clause 4.1 Sometimes I file a proof of claim for a client, but most of the time, they can do it themselves for what it is worth.

But what if that same commercial creditor client, some 20 months later, calls and says it is being dunned by a collection agency or an attorney on behalf of the bankrupt's estate, who demands that the client return a "preference payment "for services performed or goods delivered some two years before?

Here the explanation becomes a little dicey.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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