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

Preference payments are payments made by a debtor to a creditor prior to their filing for Chapter 11 bankruptcy. These payments may be made in the form of goods, services, or cash in an effort to come to a resolution between the two parties prior to bankruptcy proceedings. Preference payments are meant to prevent creditors from receiving more than what the debtor would be able to pay them in the event of bankruptcy. In Virginia, preference payments are treated a bit differently when a debtor is filing for Chapter 11 bankruptcy. In this case, the creditor must prove that the payment was made as part of a scheme to defraud other creditors in order to recover the funds. If they can’t prove this, then the preference payment is still considered valid and will not be returned to the debtor. In some cases, preference payments are illegal and can open up a debtor to criminal charges. This depends on the circumstances of the payments and the amount of money that was given. If it can be proven that the debtor was trying to defraud their creditors, then they may be at risk for facing criminal charges. Overall, preference payments can be a beneficial way for debtors to resolve their debts prior to filing for Chapter 11 bankruptcy, but they should be done properly and within the confines of the law. Making payments that don’t comply with the law could have serious repercussions for the debtor. If they’re considering making a preference payment, they should talk to an attorney to understand the legal ramifications and ensure that everything is taken care of properly.

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

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