The Bankruptcy Code provides trustees with certain powers to recover assets for the bankruptcy estate that might not otherwise exist other than under the Bankruptcy Code.
Bankruptcy Code Section 547 allows a Trustee to seek to recover payments to one creditor that were preferential over other creditors – hence them being referred to a “preference” or “preferential payment.” This means that even though the debtor still owes you money, the Trustee may seek to recover payments you already received. There are usually strong defenses to these actions also set forth in Section 547 that are routinely recognized by the Trustees if properly raised.
Your business may have been targeted by a letter from the Trustee demanding return of funds you otherwise rightfully received.
Defending Chapter 5 Actions –
Creditors in Preference and Fraudulent Conveyance Litigation in Bankruptcy
Preference and fraudulent conveyance lawsuits, also known as Chapter 5 avoidance litigation, are possibly the most common form of litigation in bankruptcy courts. If you are a defendant or are threatened with avoidance litigation, it is important to hire an attorney who is familiar with the available defenses. I have nearly 30 years of experience successfully representing hundreds of defendants in Chapter 5 avoidance suits.
What Are Preference Payments?
Under Section 547 of the Bankruptcy Code, a creditor of a debtor who receives payment from the debtor within 90 days prior to the filing of a bankruptcy petition is presumed to have received that payment in preference to other creditors of the debtor and may be required to return the payment unless they can demonstrate that the payment is protected by one of several specific exceptions. The theory supporting the recovery of preference payments is that such payments were made with the intent to prefer the creditor receiving the payment over other creditors of the debtor. The recovered payments are then made available to all creditors. While this sounds fair, most creditors who are caught up in preference litigation are not aware that the debtor they were doing business with was contemplating a bankruptcy petition and are understandably angry and upset that they are being asked to return a payment they received in exchange for valuable goods or services.
Fortunately, very few of these cases actually go to trial and there are a variety of defenses available to the knowledgeable creditor. Because I am thoroughly familiar with these defenses and how to best make use of them, I am exceptionally well-suited to help you negotiate the best possible outcome.
What Is a Fraudulent Conveyance?
A fraudulent conveyance occurs when someone pays less than fair value for an asset. For example, if you paid a debtor $50,000 for equipment that is later alleged to be worth $100,000, the purchase could be attacked as a fraudulent conveyance, and you could be sued for the return of the equipment or the difference between the purchase price and the alleged value of the equipment.
The firm’s attorneys have successfully defended many of these causes of action. We have brought even more — so we know what the Trustee strategy is.