What is the law regarding paying back money from someone who filed bankruptcy?

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What is the law regarding paying back money from someone who filed bankruptcy?

A company we did business with filed for bankruptcy in 2009. Attorneys want us to pay back money that they paid us for work that we did for them 2 months before they filed.

Asked on February 8, 2011 under Bankruptcy Law, Wisconsin

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

There is probably a preference action here by the trustee. Certain payments made by the debtor within 90 days (or 1 year, if the payment was made to an insider) prior to filing for bankruptcy, can be avoided by the bankruptcy trustee. There is an assumption that parties were being given a preference and paid before other creditors and that they were not entitled to the money.The trustee can demand that you pay back certain payments you received within 90 days (or 1 year) prior to someone's bankruptcy filing. You will then share proportionally any payments, if any, with other creditors. If you received a trustee's demand letter, speakwith a bankruptcy lawyer because there might be defenses to the trustee's preference action.


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