what is a preference claim and the odds that I will find myself facing that situation?
A. Bankruptcy not only means that you may not recover amounts owed to you, but also presents a risk that you will be sued by the debtor or its trustee. Debtors and their trustees often sue creditors to recover payments made to them in the 90 days before the bankruptcy filing (so called preferences). There are many defenses to preference liability, both statutory and judge-made. For instance, payments received by a fully secured creditor, payments made in the ordinary course of business, or those made as part of a contemporaneous exchange (e.g. COD), are usually not recoverable. Preference liability may also be reduced to the extent new credit was given by the creditor to the debtor after payment. It is usually the responsibility of the business being sued to raise these defenses in a timely manner. Also, debtors and their trustees routinely bring “fraudulent conveyance” claims which do not have to–and usually don’t–have anything to do with actual fraud. For example, such claims may b
