1/10/2024 0 Comments Bankruptcy preferential treatment![]() Trustees can void transactions that involve one creditor to make a more equitable distribution to all creditors. To do so a trustee must identify whether any creditor received a distribution-prior to the bankruptcy-that was not equitable when compared to the distribution to other creditors in the bankruptcy. The trustee’s main role is to distribute a bankrupt’s assets fairly between their creditors. Why do trustees void preferential payments? In personal insolvency administrations, only trustees of bankrupt estates and personal insolvency agreements-where the agreement allows-can claim the return of preferential payments. Preferences are usually payments of money, although a variety of transfers of assets can be deemed as preferential. Bankruptcy trustees can recover these payments or transfers under the provisions of the Bankruptcy Act 1966. Preferential payments or ‘preferences’ are payments or asset transfers to creditors that give them an advantage over the other creditors. This factsheet outlines the basics of how preferences in bankruptcy works. Anyone who has been charged with accepting a voidable preference may wish seek advice on the numerous exceptions to the general definition of a preference and on strategies for defeating the trustee’s claim that a payment was a voidable preference.Preferences in bankruptcy: What is a preferential payment in bankruptcy? Preferential payments or ‘preferences’ are payments or asset transfers to creditors that give them an advantage over the other creditors. The law governing the definition of a voidable preference is very complicated. A payment by the debtor to a creditor for new value as opposed to payment on a prior obligation is generally not considered a voidable preference. The same rule applies to payments made when the debtor was in fact insolvent, even if the payment was made before the 90 day period begins to run. Thus, any payment to a creditor to retire all or part of a debt made during this period can be voided by the trustee without proving that the debtor was insolvent. ![]() The code creates a presumption that the debtor was insolvent 90 days before the bankruptcy petition was filed. The Bankruptcy Code defines a voidable preference as a payment to or for the benefit of a creditor on account of a debt owed by the debtor and made while the debtor is insolvent. The payment that you received before the bankruptcy petition was filed is called a “preference,” or, to be more accurate, a “voidable preference.” A preference is a payment by the debtor that gives one or more creditors preferential treatment over other creditors. ![]() §547 - the section of the Bankruptcy Code that deals with voidable preferences. But instead of receiving money from the bankruptcy trustee, you receive a federal court complaint seeking to recover the money paid to you before the bankruptcy. You file your notice of claim for the balance owed to you and wait. You shrug and think things could be worse. Bad news, but at least you were paid some of what the customer owes. Instead of “more,” however, the customer files a bankruptcy petition two weeks later. The customer pays one-third of what he owes and promises more later. You take the obvious action and ask the customer for payment. You learn that the customer is experiencing financial difficulties and may have trouble paying his debts. You have a customer who owes you money for goods that were bought at various times during the last year. Let’s imagine that you own and operate a business in Rockland County.
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