A voidable preference refers to the transfer of property from a debtor to a creditor prior to filing for bankruptcy. This transfer enables the creditor to receive a greater portion of the debtor’s assets than what is considered fair. If the transfer takes place within 90 days before filing for bankruptcy, or within one year if the creditor is an insider, the bankruptcy trustee has the authority to reclaim the preferential transfer for the benefit of the bankruptcy estate. This is also referred to as a preferential transfer or voidable transfer.
A voidable preference refers to a preferential transfer made by an insolvent debtor to a creditor prior to filing for bankruptcy. This transfer allows the creditor to receive a greater portion of the debtor’s assets than what is fair. Specifically, it pertains to the transfer of property interest made for the benefit of a creditor who is owed on a previous debt, occurring within 90 days before the bankruptcy petition is filed or within one year if the creditor is an insider. For instance, if a debtor owes $10,000 to Creditor A and $5,000 to Creditor B, but transfers $6,000 to Creditor B within 90 days before filing for bankruptcy, this transfer is considered a voidable preference. Creditor B would receive more than their fair share of the debtor’s assets, and the bankruptcy trustee may recover this transfer for the benefit of the bankruptcy estate. Voidable preferences are also referred to as preferential transfers, voidable transfers, or preferential assignments. They should not be confused with fraudulent conveyances, which involve intentional transfers made to deceive creditors.
A voidable preference refers to a payment or transfer of assets made by a debtor to a creditor before filing for bankruptcy. This payment or transfer can be undone or “avoided” by the bankruptcy trustee if it meets certain criteria.
For a payment to be considered a voidable preference, it must meet the following criteria: it must be made to a creditor, it must be made within a certain time period before filing for bankruptcy, it must be made while the debtor was insolvent, and it must allow the creditor to receive more than they would have received in a bankruptcy distribution.
The purpose of voidable preference laws is to prevent debtors from favoring certain creditors over others before filing for bankruptcy. These laws aim to ensure fair and equal treatment of all creditors in the bankruptcy process.
No, not all payments made before bankruptcy are considered voidable preferences. The payment must meet the specific criteria mentioned earlier to be considered a voidable preference.
Yes, a creditor can challenge a payment or transfer made by a debtor as a voidable preference. They can file a lawsuit in bankruptcy court to recover the amount received by the creditor.
If a payment is deemed a voidable preference, the bankruptcy trustee can recover the amount from the creditor. The recovered amount will then be included in the bankruptcy estate and distributed among all creditors.
Yes, a debtor can defend against a voidable preference claim. They may argue that the payment was made in the ordinary course of business, that the creditor provided new value in exchange for the payment, or that the payment was made in good faith.
In most jurisdictions, a voidable preference can be challenged if it was made within 90 days before filing for bankruptcy. However, if the payment was made to an insider (such as a family member or business partner), the time period may be extended to one year.
Yes, a voidable preference claim can be settled between the bankruptcy trustee and the creditor. The settlement may involve the creditor returning a portion of the payment or agreeing to a reduced amount.
To avoid a voidable preference claim, debtors should consult with a bankruptcy attorney before making any payments or transfers before filing for bankruptcy. By understanding the criteria and potential consequences, debtors can make informed decisions to minimize the risk of voidable preference claims.
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: 16th April 2024.
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