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

Preference payments in a Chapter 11 bankruptcy refer to payments made to creditors within a specified period of time before the debtor has filed for bankruptcy. The idea behind preference payments is that they give some creditors an unfair advantage over other creditors by allowing them to receive their due payments before other creditors can claim them. Preference payments are usually payments of debt that the debtor has made to one or more creditors within the 90 days before filing for bankruptcy. Under the Bankruptcy Code, a debtor is not allowed to pay preferential payments to a single creditor if the payments would unfairly benefit them over other creditors. The Bankruptcy Code also states that creditors receiving preferential payments must return those payments back to the bankruptcy estate. This means that the money is then redistributed to other creditors who did not receive any preference payments from the debtor. The purpose of preference payments in a Chapter 11 bankruptcy is to ensure that all creditors receive equal access to payments from the debtor’s estate. This prevents certain creditors from receiving preferential treatment over others. Therefore, it is important for creditors to be aware of the preference payment rules before filing for bankruptcy.

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

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