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Chapter Sixteen. Avoidable Preferences—11 U.S.C. § 547

Chapter Sixteen. Avoidable Preferences—11 U.S.C. § 547. After reading this chapter you will be able to: Describe the avoidable preferences under the Bankruptcy Code List he elements of an avoidable preference

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Chapter Sixteen. Avoidable Preferences—11 U.S.C. § 547

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  1. Chapter Sixteen. Avoidable Preferences—11 U.S.C. §547 • After reading this chapter you will be able to: • Describe the avoidable preferences under the Bankruptcy Code • List he elements of an avoidable preference • Understand the affirmative defenses which a creditor may assert to defeat a trustee’s claim of an avoidable preference • Describe the basic procedures of a preference complaint

  2. Preferences • A preference is a transfer of property or an interest in property to a creditor, on the eve of bankruptcy, in full or partial satisfaction of debt to the exclusion of other creditors. • A preference meeting certain defined conditions will be avoidable by a bankruptcy trustee.

  3. Practice Pointers • The Code defines a ‘‘transfer’’ to mean: • (1) the creation of a lien • (2) retention of title • (3) foreclosure of the debtor’s equity of redemption • (4) any mode, ‘‘direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or an interest in property.’’

  4. Elements of a Preference • Transfer of property or an interest in property • To or for the benefit of a creditor • On or for account of an antecedent or preexisting debt • Made while the debtor is insolvent • Made within 90 days of filing or within one year if the transferee is an insider • That enables the creditor to receive a greater Chapter 7 dividend than it would otherwise receive

  5. Preference Defenses • A contemporaneous exchange for new value • A debt incurred and paid in the ordinary course of business • Within any nonbankruptcy perfection periods or within 30 days of debtor receiving possession • Unsecured debt incurred for new value • Floating liens, except for improvement of position • Unavoidable statutory liens • Domestic support obligations • A consumer debtor’s consumer debts of up to $600 (permits preferential payment of nominal debts) • Business transfers less than $5,475 • Consumer approved repayment plan • Noninsider security interests for the benefit of insider

  6. Plaintiff/Trustee Pleadings • Summons and Complaint • Cover Sheet, as required by local rule • Evidence Proving Preference: • Checks • Contracts • Recorded documents • Documents of title

  7. Defendant/Transferee Pleadings • Answer • Evidence Proving Defense • Checks • Contracts • Recorded documents • Documents of title

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