In the last few days, hundreds of bankruptcy complaints against trade creditors were filed by bankrupt Chapter 11 debtor RadioShack. The crux of the complaints concern “preferences” requesting the return of money received from bankrupt debtors prior to the bankruptcy filing for goods or services sold. However, before you or your business start writing a check to return hard earned money, you should know that you may have defenses that can be asserted.
What is Preference?
To start, a preference is a payment received from a debtor, made within 90 days of the bankruptcy filing. Bankruptcy Code section 547(b) allows a bankruptcy trustee or debtor-in-possession (in this instance, RadioShack) to avoid these payments if the transfers were to or for the benefit of a creditor on account of an antecedent debt but while the debtor was insolvent (unable to pay the debts owed).
When Congress enacted the Bankruptcy Code, the policy behind preferences was to level the playing field for all creditors by not allowing a creditor to receive more than it would have within the debtor’s bankruptcy case.
Continue Reading Trade Creditors Protect Yourselves: RadioShack Filing Bankruptcy Preference Complaints