Sued by a Bankruptcy Estate for a "Preference Action"?
"Preferences" can be difficult to wrap your mind around -- you sell goods or services to the Debtor, you get paid what you are owed or sometimes a fraction of what you are owed by the Debtor, then you get sued?!
Why am I being sued? How was I "preferred" over other creditors?If the Debtor owes you money and pays you during the 90-day period prior to filing for bankruptcy, it is likely you received a "preference payment". Section 547(b) of the Bankruptcy Code sets out five elements of a preferential transfer, and gives the Debtor's estate the right to sue to recover preferences. The term "preference" implies that you received more than similarly situated creditors (who did not receive payments from the Debtor), and more than you would receive in a Chapter 7 liquidation.
How should I prepare for an initial meeting with a lawyer?You should consult with a bankruptcy attorney experienced in preference litigation. To prepare, identify your invoices (if any) and the Debtor's checks (or other method of payment) that correspond to the preference payment. Also, if the payment was made pursuant to a contract, provide a copy of the contract. If you have sold goods and services to the Debtor in the past, try to gather information about your prior transactions with the Debtor -- two years worth, if you can.