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

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.

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.’’

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

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

Plaintiff/Trustee Pleadings

Summons and Complaint Cover Sheet, as required by local rule Evidence Proving Preference:

Checks Contracts Recorded documents Documents of title

Defendant/Transferee Pleadings

Answer Evidence Proving Defense

Checks Contracts Recorded documents Documents of title