What are “preference payments” in a Chapter 11 bankruptcy?

Preference payments are payments made by a debtor to one creditor over the others. In a Chapter 11 bankruptcy, the debtor seeks to reorganize and pay off its debts. In order to do this, the court will require the debtor to provide the creditors with an equal distribution of money or assets, and preference payments break this rule. A preference payment is a payment made to a single creditor over all the others, with the intention of settling the debt faster. This can be done in two ways. First, the debtor can make a single large payment to the creditor instead of spread out payments over time. Second, the debtor can make multiple payments in a short period of time. Preference payments can be beneficial for the debtor if used in the right way. For example, the debtor may be in a financial pinch and need to make quick payments to get out of it. However, if the preference payments favor one creditor over the others, it can be seen as unfair. This is why the court will typically require that the debtor make equal payments to all of its creditors if a Chapter 11 bankruptcy is offered. In short, preference payments are payments made by a debtor to one creditor over all the others. In a Chapter 11 bankruptcy, preference payments are prohibited unless all creditors are given an equal distribution of payments. This helps to ensure that the debtor’s debt is treated fairly.

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What are “preference payments” in a Chapter 11 bankruptcy?

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