Section 547 of the Bankruptcy Code empowers a debtor, debtor-in-possession or trustee, to avoid certain transfers made during the 90-day period (one year if the transferee was an insider or relative) immediately before the commencement of a bankruptcy case. A lawsuit initiated to avoid such payments is called a preference action. The theory behind such actions is that debtor was already insolvent at the time payments were made. The payments therefore give special treatment to certain creditors over others- hence the names preferential transfers and preference actions.

Preference actions are often confusing to defendants who wonder, “why must I repay money rightfully earned?” The answer is that you may not necessarily need to return a single penny. One sued in a preference actions has several defenses available. First and foremost, we may be able to demonstrate that debtor was not insolvent when the transfer was made. In addition, Bankruptcy Code section 547(c) provides several other defenses, including:

  • The transfer was intended to be and was in fact a contemporaneous exchange for new value given to debtor.
  • The payment was for a debt incurred in the ordinary course of business and was made in the ordinary course of business and pursuant to the customary business terms.
  • Transferee provided debtor with “new value,” usually in the form of goods or services, after the “claimed preference” transfer was made.

The attorneys of Weltman & Moskowitz have significant experience in preference actions, having been involved in hundreds of such actions. This unique knowledge gives Weltman & Moskowitz, LLP the capability to defend against tactics to reclaim money that was rightfully earned. If you have been named as a defendant in a preference action, call Weltman & Moskowitz to learn about your rights and defenses. We will fight to protect your hard-earned money.

For further information on this topic or to discuss your case, please contact Richard E. Weltman or Michael L. Moskowitz by telephone, fax or email.

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