Defending Preference Claims in Bankruptcy

When a business files for bankruptcy, the trustee will sometimes sue creditors to get money back from them if they received a payment within 90 days of the filing of the bankruptcy. This is known as a preference action since the idea behind it is to avoid a debtor that is about to file bankruptcy from preferring certain creditors over others. However, there are defenses that can be used that may allow the creditor to retain the money they received within 90 days. For example, if the payment was made in the ordinary course of business such as within 30 days of invoicing, that may be a valid defense. If, after receiving payment, the creditor extended new credit, to the extent the new credit extended is not repaid, an offset will be allowed. There are other defenses as well. If a demand is received from a debtor or a trustee, it is important to immediately consult with an experienced attorney as there are time limits in responding once the complaint has been filed.

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