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

Preference payments are special payments made by a debtor during the 90 days before filing for Chapter 11 bankruptcy in Missouri. Preference payments are payments to certain creditors that are preferred over other creditors. Preference payments must meet certain criteria to be considered such payments. The debtor must have made the payment with the intent to prefer one party over others, the creditor must have been an “insider” of the debtor such as a family member, partner, or business associate, and the payment must have been made while the debtor was insolvent. Preference payments can consist of money, goods, or services. They can be made in the form of cash, a check, a wire transfer, or even a voluntary transfer of property. Preference payments can be clawed back or reversed by the bankruptcy court if they are found to meet the criteria and were made within the 90-day period. These payments are generally reversed so that the debtor’s other creditors may be fairly paid. Once reversed, the payments will be redistributed among the debtor’s creditors. Any funds that are not used to pay creditors will then be returned to the debtor.

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

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