Written by attorney David Adam Blansky

What is a "Preferential Transfer"? - Part One

A preferential transfer is a transfer to a creditor shortly before the debtor files for bankruptcy. Other creditors affected by the debtor’s bankruptcy have the option to sue the creditor shown prior preference for payment when: 1) a transfer exists to the benefit of the credit for prior debt; 2)the debtor was insolvent when the transfer was made; 3) the transfer was made 90 days prior to the bankruptcy filing; 4) the transfer allowed the preferred creditor to receive a larger payment than if the transfer was part of a bankruptcy filing.

Additional resources provided by the author

See 11 U.S.C. Section 547. Also note that the elements of an "ordinary course of business" defense were reduced from three to two as a result of 2005 amendments to the Bankruptcy Code. The date on which the bankruptcy case in which the trustee has brought a lawsuit to collect the transfer was filed will determine whether a creditor will need to prove three or two elements to prevail on this defense. The discussion contained above is intended as a simple introduction to the topic and should not serve as a substitute for the legal advise of counsel having available all of the pertinent facts and circumstances.

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