Also known as: preferential transfer · preference · voidable preference
Written by attorneys — see sources below.
A transfer of the debtor's property to a creditor on account of an antecedent debt made while the debtor was insolvent and within ninety days before the bankruptcy filing that enables the creditor to receive more than it would have received in a Chapter 7 liquidation. The trustee may avoid the transfer to promote equality of distribution among creditors.
Pablo Perez, facing insolvency, paid a religious organization three months before filing bankruptcy for a prior debt on a nonprofit dwelling lease. The trustee avoided the payment as a preferential transfer because it occurred within the ninety-day period and gave the organization more than it would have received in liquidation. The funds returned to the estate for equal distribution to all creditors.
Peter Park transferred funds to satisfy an import duty claim ninety days before bankruptcy. The trustee avoided the transfer because it favored one creditor over others during the preference period while the debtor was insolvent. The estate recovered the amount for pro rata distribution.
Pulse Media, the debtor, paid rents collected by a junior mortgagee receiver to that creditor shortly before filing. The trustee avoided the payment as preferential because it improved the junior creditor's position within the look-back period while the debtor was insolvent. The rents returned to the estate.
Priya Prasad transferred assets under a will construction preference to one beneficiary ninety days before bankruptcy. The trustee avoided the transfer because it occurred during insolvency and gave that beneficiary more than its pro rata share. The assets were clawed back for equal creditor treatment.
The trustee may avoid transfers made within ninety days before the petition if the debtor was insolvent and the transfer favored a creditor on an antecedent debt.
Avoidance restores equality among creditors by undoing last-minute improvements in position that occurred through state-law collection efforts before the bankruptcy filing.
Yes. When a debtor grants a security interest within the ninety-day period on account of an antecedent debt while insolvent, the trustee may avoid the interest under the same standards that apply to cash payments.
…Relative Priority; Comment, The Relative Priority of Small Business Administration Liens: An Unreasonable Extension of Federal Preference?, 64 Mich. L. Rev. 1107 (1966). Considerable uncertainty would also result from the approach used in the opinions below. Developing priority rules on a case-by-case basis, depending on the…