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

Preference payments in a Chapter 11 bankruptcy refer to payments made to certain creditors prior to filing for bankruptcy in an attempt to pay them off in full. Preference payments are made by the debtor in the 90 days prior to the filing of the bankruptcy and they are made to preferential creditors, like family members, business associates, and friends. These payments can be made in the form of cash, property, or services. The main issue with preference payments is that they are not treated equally in the bankruptcy process as other creditors. Preference payments are given priority over other debts, which can result in other creditors receiving less money than they are owed. Additionally, the payment of preference payments can result in certain creditors receiving a greater share of the funds than their portion of the debt would normally entitle them to. This can create a problem for other creditors. In an effort to prevent this issue, all preference payments are subject to review, and if they are deemed to be unfair to other creditors, they can be reversed. If this occurs, the funds will be returned to the bankruptcy estate and distributed amongst the creditors equitably. This ensures that all creditors are treated fairly during the bankruptcy process.

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

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