Preferential Transfer (Preference Claim)

Category: legal

A payment made by a debtor to a specific creditor shortly before filing for bankruptcy, unfairly favoring them over others.

Preference is the "clawback" rule. If a failing company owes ten vendors money, but pays off the CEO’s brother’s company 30 days before going bankrupt, the court will sue the brother to return the money to the bankruptcy estate. The goal is to ensure all creditors are treated equally.

Common Examples

• The bankruptcy trustee filed a lawsuit to recover a $50,000 preferential transfer the debtor made to a favored supplier just weeks before filing.
• Defending against a preferential transfer claim often requires proving the payment was made in the "ordinary course of business."