Who can sue to recover a preferential transfer?
Chapter 5 of the Bankruptcy Code empowers the trustee appointed in each bankruptcy case to pursue all "legal and equitable interests of the debtor in property", including the right to assert preference and fraudulent conveyance claims. See 11 U.S.C. 541.
How long do they have to sue on a preferential transfer?
Generally, a trustee in bankruptcy or other party having standing to sue for a preferential transfer must commence that suit within two years of the date of the bankruptcy filing in a voluntary case and two years from the date of the order for relief in an involuntary case.
How far back can a trustee go?
A trustee in bankruptcy or other party having standing to sue for a preference may sue to recover transfers made within 90 days of the bankruptcy filing. When a creditor is an insider, as that term is defined by Section 101(31) of the Bankruptcy Code and the applicable case law, the lawsuit may also seek to recover transfers made between 90 days and one year of the date of the bankruptcy filing. See 11 U.S.C. 547(b).
What is the difference between avoiding a preference and recovering it?
Section 547 of the Bankruptcy Code allows a party with standing to avoid the preference, which is essentially a judicial declaration undoing the transfer. Section 550 of the Bankruptcy Code permits the trustee in bankruptcy or other party with standing to recover the preferentially transferred property or its value from the recipient. Trustees commonly seek to avoid and recover the preferential transfer within the same claim for relief.
Where can I be sued for a preference?
Under the Bankruptcy Code and other applicable federal law, such suits must be brought in federal court.
In which federal district can I expect to be sued?
Whether you may be sued in the district in which the bankruptcy case is pending or the district in which you reside or conduct business is still developing. Under Section 1409(b) of the Bankruptcy Code, venue is limited to the district in which the defendant resides for proceedings to recover money or property from a non-insider of less than $11,725 (for adversary proceedings brought before April 1, 2010 the venue limit was $10,950). However, there is a split in authority as to whether this venue limitation applies to preference claims. In Moyer v. Bank of America, N.A. (In re Rosenberger), 400 B.R. 569 (Bankr.W.D.Mich.2008), the court used a very strict interpretation of the other subsections Section 1409 to conclude that Section 1409(b) did not apply to preference claims. Subsequently (and more recently), in Dynamerica Mfg. LLC v. Johnson Oil Co., LLC, 2010 WL 1930269 (Bkrtcy.D.Del., May 10, 2010), the court confirmed the applicability of the venue limitation to preferences.
