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Bankruptcy Preference Actions

Bankruptcy Code section 547 allows the trustee in a Chapter 7 proceeding, or a debtor-in-possession (or trustee) in a Chapter 11 proceeding, to recapture for the bankruptcy estate certain creditor payments made by the debtor during the 90 day period before the bankruptcy filing. This preferential transfer provision helps ensure no creditor receives favored treatment or is disproportionally rewarded through aggressive collection practices by creditors seeking payment before the debtor files for bankruptcy. Thomas H. Curran Associates represents trustees in bringing bankruptcy preference actions to augment the bankruptcy estate with assets that should be available to the entire creditor body. Given its familiarity litigating bankruptcy preference defenses and many other types of bankruptcy litigation, the Firm also represents creditors in successfully defending bankruptcy preference actions commenced by a trustee or debtor.

Section 547 of the Bankruptcy Code provides that certain pre-petition transfers may be deemed preferential and voidable if they: (i) were made to or for the benefit of a creditor; (ii) for a previously incurred (antecedent) debt; (iii) while the debtor was insolvent; (iv) within 90 days of the petition date or in some cases within one year of the petition date; and (v) enabled a creditor to receive more than it would have in a Chapter 7 liquidation if the transfer had not been made.

Creditors that are faced with bankruptcy preference actions may assert affirmative defenses to preference claims, including, most commonly:

  • The ordinary course of business defense that applies to transfers or payments made within the ordinary course of the debtor’s business and was made according to ordinary business terms.
  • The contemporaneous exchange defense that applies to transactions where the parties intended to make a contemporaneous exchange and did so. These include cash-on-delivery transactions.
  • The subsequent new value defense applies when the creditor can prove the payment was received for a product or service rendered at that time or in the future and was not intended to pay down existing debt.

The attorneys at Thomas H. Curran Associates have decades of experience practicing in bankruptcy courts nationwide, representing trustees, creditors and debtors. The Firm’s attorneys also have significant experience in the prosecution and defense of preference actions whether litigated to trial in an adversary proceeding or resolved through negotiation.

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