Preference Actions: What They Are and What You Need to Know

Preference Actions deal with payments to certain creditors over others. If you have been in a precarious financial situation, and you’re planning to file for bankruptcy, it’s very important that you know what happens when a preference action is filed. This post will help you prepare.

Basically, these provisions are in place to ensure that all creditors are receiving their fair share of the debtors assets. It’s in place to ensure that the process is as fair as possible to everyone involved, but it can sometimes be a sensitive situation. No one wants to give money back once they’ve been paid, but sometimes that’s what the law dictates. Here are a few facts about preference actions, when they happen and what you can expect afterward.

When a Preference Action is Filed

If a payment was made within 90 days of a debtor filing for bankruptcy, those payments may fall under the umbrella of a preference action. The payments are all subject to review and can perhaps be recalled by the trustee in favor of applying all assets equally to interested creditors.

Most of the time, these payments are one-time actions on an older debt, which is why there are many exceptions on what payments are subject to this action. There are way too many considerations to list here, which is why a bankruptcy attorney can help the debtor to determine whether or not a payment is eligible to be returned.

What You Can Expect

This type of bankruptcy provision is largely out of the debtors control. The only aspect that the debtor can determine is the time scheme. If a payment was made more than 90 days before filing for bankruptcy, it’s no longer a concern. Otherwise, it’s up to the state law to determine which payment stays and which payment goes.

The only time this can get uncomfortable for the debtor is if preferential payments were made to a family member or someone else with a personal relationship to the debtor. Those payments are subject to a preference action, and the debtor should be prepared to deal with that.

Remember that a bankruptcy attorney can help you navigate these and other complex issues. It’s a tough time; let us look out for you.