A preferential transfer occurs when an individual who is indebted to multiple parties provides more money or assets to one of those parties prior to filing for bankruptcy. This unfair practice disadvantages the other creditors. In such cases, the bankruptcy trustee has the authority to reclaim the excess funds or assets and distribute them equally among all creditors. This action is referred to as a voidable preference or preferential assignment.
A preferential transfer refers to a transfer made by an insolvent debtor to a creditor prior to filing for bankruptcy, allowing the creditor to receive more than their fair share of the debtor’s assets. For instance, if a debtor owes money to multiple creditors but pays off one creditor before filing for bankruptcy, that payment is considered a preferential transfer. However, if the transfer occurs within 90 days before the bankruptcy petition is filed (or within one year if the creditor is an insider), the bankruptcy trustee has the authority to recover the preferential transfer for the benefit of the bankruptcy estate. This is because the transfer provides the creditor with an unfair advantage over other creditors. For example, if a debtor sells a valuable property to a family member at a price lower than its market value and subsequently files for bankruptcy, the bankruptcy trustee can reclaim the property from the family member and distribute it equally among all the creditors.
A preferential transfer refers to a payment or transfer of assets made by a debtor to a creditor within a certain period before filing for bankruptcy. This transfer is considered preferential because it gives the creditor an advantage over other creditors.
In most jurisdictions, a preferential transfer can be challenged if it was made within 90 days before the debtor filed for bankruptcy. However, if the creditor is an insider (such as a family member or business partner), the look-back period can extend up to one year.
The purpose of challenging a preferential transfer is to ensure fair treatment of all creditors in a bankruptcy case. By recovering the transferred assets, they can be distributed among all creditors on an equal basis.
To be considered preferential, a transfer must meet certain criteria, including being made to or for the benefit of a creditor, made while the debtor was insolvent, made within the applicable look-back period, and allowed the creditor to receive more than they would have received in a bankruptcy distribution.
Yes, a preferential transfer can be avoided if it was made in the ordinary course of business. This means that if the transfer was consistent with the debtor’s regular business practices and was made according to industry norms, it may not be considered preferential.
If a preferential transfer is successfully avoided, the transferred assets will be returned to the debtor’s bankruptcy estate. These assets will then be available for distribution among all creditors in accordance with the bankruptcy laws.
Yes, a creditor can defend against a preference claim by asserting certain defences. Common defences include showing that the transfer was made in the ordinary course of business, that the creditor provided new value to the debtor after receiving the transfer, or that the transfer was made as a contemporaneous exchange for new value.
Yes, a debtor can recover a preferential transfer made to an individual, as long as the transfer meets the criteria for being considered preferential. The identity of the recipient does not affect the ability to challenge a preferential transfer.
Yes, a preferential transfer can still be avoided even if the creditor had no knowledge of the debtor’s insolvency. The focus is on the effect of the transfer, not the creditor’s knowledge or intent.
No, a debtor cannot be held personally liable for a preferential transfer. The avoidance of a preferential transfer aims to recover the transferred assets for the benefit of all creditors, not to impose personal liability on the debtor.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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