What area creditor’s rights regarding recovery of preferential payments?

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What area creditor’s rights regarding recovery of preferential payments?

I received a settlement proposal for recovery of preferential payments from a customer that filed Chapter 11 on 01/09. It states that any payments of invoices from them to us within 90 days prior to their filing Chapter 11 are returnable.These payments were in the ordinary course of business for services performed and paid within the same timeframe as previous invoices. In addition, subsequent to the filing, they ordered services during the remainder of 2009 and paid in full. Can they institute an adversary proceeding in the Bankruptcy Court against us to recover the transfer, interest and cost.

Asked on November 17, 2010 under Bankruptcy Law, New Jersey

Answers:

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

Answered 11 years ago | Contributor

There are some defenses against a preference claim but it is a very complicated matter and you should seek help from an attorney in your area.  Generally speaking, if the payment was within 90 days it can be deemed preferential.  If, however, the payment was made by check, the check must have cleared within that time.  Also, the debtor must have been "insolvent"  at the time that the payment was made (you have to prove that they were not insolvent; there is that presumption already).  And yes, you are correct that there is a defense in the "ordinary course of business" and it turns on the facts of the case.  Then there is the second defense that you have alluded to" "new value given" but that may only work if you did NOT receive payment for the goods or services given after the "ordinary course of business" payment.  Seek help.  Good luck.


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