Preference Claims in Bankruptcy

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Adversary Proceedings

Our firm has handled many bankruptcy preference lawsuits in the Fort Lauderdale and South Florida area. A preference claim is generally brought by a Chapter 7 or Chapter 11 trustee or debtor-in possession against a creditor who was paid within 90 days of the filing of the bankruptcy action. The theory behind the bankruptcy preference laws is that friendly creditors should not be paid by a debtor just before filing a bankruptcy action at the expense of other creditors. It doesn’t always work that way.

Preference actions are typically filed against any creditor who received payment during the 90 day period preceding the bankruptcy filing. A preference action does not require any finding of wrongdoing by the creditor. It is a question of timing. In some cases the trustee conducts a brief investigation to determine if the payment during the “preference period” is in fact a recoverable preference payment. In other cases the trustee sues every creditor that received a check during the preference period. In a recent case filed by a major developer in South Florida over one thousand preference cases were filed without any investigation. Many creditors were required to expend attorneys fees to combat baseless claims.

There are a number of defenses to a preference claim. One is based on the course of conduct between the parties. If your company has regularly invoiced the Debtor over the past few years and the Debtor has consistently paid in the same manner, such as within 30 days, and the payments made during the preference period fall within those same guidelines, then you may not have to give back the payments. If the Debtor received something in return for the payment, as in the case of a COD delivery, then you may have a valid defense. Similarly, if you hold a lien on the debtor’s assets and the payment resulted in a corresponding reduction in the lien amount then you may have a valid defense.

Many cases can be resolved with limited litigation, either by presenting a valid defense or by quickly reaching a settlement with the trustee. We would be happy to consult with you to determine the best course of action for you or your company. Our offices are located in Plantation and we handle cases in Dade, Broward and Palm Beach Counties.

This article is not intended as a substitute for competent legal or accounting representation, but merely as a guide to help you decide whether you need the services of a licensed attorney or CPA.

David W. Langley is licensed to practice only in the State of Florida and handles bankruptcy cases in South Florida, Miami, Hollywood, Fort Lauderdale, Plantation, Pembroke Pines, Pompano,Coral Springs, Deerfield, Boca Raton, Delray and West Palm Beach.