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

Preference payments are payments that are made to certain creditors of a debtor company in a Chapter 11 bankruptcy. These payments are typically made before the filing of the bankruptcy petition and are made with the intent of favoring certain creditors over other creditors. Preference payments must be made with the intent of disadvantaging other creditors, not with the intent of helping the company. The payments must also have been made within 90 days prior to the filing of the bankruptcy petition. In North Carolina, preference payments are deemed to be unenforceable and are recoverable by the court-appointed bankruptcy trustee. The trustee is given the ability to go after the preferential payments in order to compensate all creditors in a fair and equitable manner. If it is determined that a preference payment was made with the intent of disadvantaging other creditors or if the payment was made within 90 days prior to the bankruptcy filing, then the court-appointed trustee can recover the payment from the creditor who received it. This type of recovery is referred to as “avoidance of preferential transfers.” Preference payments in a Chapter 11 bankruptcy can be a complicated matter, so it is important to consult with an experienced bankruptcy attorney in order to understand how the law applies to your particular situation. Doing so can help ensure that the bankruptcy process is successful and that all creditors receive a fair and equitable distribution.

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