What is a preference?
In simplest terms, a preference is a payment or transfer of property to pay an existing debt that results in one unsecured creditor receiving more on their debt than the percentage payment they would have received in the debtor’s bankruptcy case had they not been paid. Because “equality of treatment among creditors” is a well established principle of the bankruptcy system, the Bankruptcy Code gives trustees, certain debtors and creditors committees the right to sue to recover preferential payments or property transfers to increase the “pot” of value to be distributed to all the creditors according the priorities and rules the Code and bankruptcy law specify. (How this distribution works is more complicated and beyond the scope of this article). In defending a preference action, you should pay attention to some other requirements. The payment or transfer must have been made on or within 90 days before the bankruptcy petition filing date, [the period is one year when the creditor qualifi
A preference is a payment made by a debtor during the 90 days prior to filing a petition in bankruptcy (includes the date of filing) which favors one creditor over another. If a preference payment was made to an insider, the preference period is 1 year prior to the petition date. Preference payments are subject to recovery and returned to the bankruptcy estate.
