Preference Actions, Part 1: The Double Whammy

Part 1: The Double Whammy

Robert S. Bernstein, Esquire
Bernstein-Burkley, P.C.
Creditworthy News

Almost every credit manager has been faced with the “double whammy.” Your customer files bankruptcy and you are looking at a big write-off. You do your investigation and decide it’s a dead end and you bite the bullet.

Weeks, months or years later, you get a nice threatening letter from a Bankruptcy Trustee telling you that the last payment you did get from the debtor was a “preference” and that you should write a check immediately to return it!. That is the double whammy.

But, take heart. There are ways to reduce the risk and to defend against the claim. Careful application of payments from a troubled customer, can help. After the fact, look at “ordinary course of business” payments or “subsequent new value” as defenses. By all means do not write a check until you have discussed the matter with bankruptcy counsel to determine your defenses. Even if your defenses are shaky, any preference claim can be settled for less than 100% In the coming weeks we’ll explore the issues in more depth and help take some of the mystery out of the Dreaded Preference.

Next – Part 2: Prove It, Mr. T

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