Bankruptcy Preference Actions
– Claims and Defenses
The intricate world of business bankruptcy comes with many facets, one of which is preference actions. For those unfamiliar, the term might sound benign, but in the realm of bankruptcy, preference actions are a key battleground between debtors and creditors. Here, we'll shed light on what they are, their implications, and how the experienced team at Theodore N. Stapleton, P.C. stands ready to assist with both claims and defenses.
Understanding Preference Actions
At its core, a preference action is an effort by the bankruptcy estate (often through the trustee) to claw back certain payments made by the debtor to a creditor shortly before filing for bankruptcy. Why? The goal is to ensure equitable treatment of all creditors, preventing any specific creditor from receiving a higher percentage of its claim than others in the same class.
The Bankruptcy Code stipulates that transfers made to a creditor on account of an "antecedent debt" (that is, a debt incurred before the transfer was made) within 90 days before the bankruptcy filing may be considered preferential. This window extends to one year if the creditor was an insider, like a director, officer, or relative.
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Preference Action Claims
When the bankruptcy estate believes that a transaction was preferential, they can initiate a claim to recover the payment or transfer. The primary objective is to ensure that the funds or property are distributed fairly among all creditors.
However, not all payments made within the 90-day or one-year period are automatically recoverable. Several defenses can protect these transfers from being clawed back.
Preference Action Defenses
1. Contemporaneous Exchange for New Value:
If the debtor and creditor intended the transaction to be a contemporaneous exchange for new value, and it was indeed so, the transfer might be protected. For instance, if a debtor made a payment for goods delivered the very same day, this might qualify as a contemporaneous exchange.
2. Subsequent New Value:
Even if the debtor made a preferential payment, if the creditor later extended new credit to the debtor (and this wasn’t repaid), the creditor might offset the preference amount by this subsequent new value.
3. Ordinary Course of Business:
Payments made in the regular course of doing business between the debtor and creditor are often exempt from preference actions. This defense argues that the payment was consistent with previous transactions between the parties and wasn't an attempt to favor one creditor over others.
4. Minimum Amounts:
For consumer cases, transfers totaling less than $600 might not be pursued. For business cases, the threshold is $6,825 (as of 2021, though this can change).
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How Theodore N. Stapleton, P.C. Can Assist
With decades of experience in the labyrinth of business bankruptcy, Ted Stapleton brings a comprehensive understanding of both prosecuting and defending preference action claims.
For Creditors:
If you've received a demand from a trustee or debtor-in-possession seeking to recover a preferential transfer, Theodore N. Stapleton, P.C. can vigorously defend your position. By carefully analyzing your transaction history and circumstances surrounding the alleged preference, Ted can determine the best available defenses and work diligently to protect your rights.
For Trustees and Debtors:
If you're seeking to maximize the estate's assets for distribution to creditors, Ted can aid in identifying potential preference actions and prosecuting these claims. His meticulous approach ensures that every avenue is explored to bring equity to all creditors involved.
A Partner in Your Bankruptcy Journey
Preference actions are a nuanced, vital aspect of bankruptcy proceedings. They can be a double-edged sword—both a source of recovery and a potential liability. The key is to have an expert by your side who can navigate these waters with precision.
Ted Stapleton and the team at Theodore N. Stapleton, P.C. have championed countless clients through the complexities of preference actions. Whether you're on the offensive or the defensive, we're here to offer sound advice, robust representation, and the peace of mind that only expertise can provide.
Note: This content is for informational purposes only and does not constitute legal advice. Always consult with an attorney for any legal decisions.