What is a preference action?

A preference action is a type of legal action related to creditors’ rights law that is specific to North Carolina. It is used when a creditor believes that a debtor has given preferential treatment to another creditor. The preference action is a process by which the creditor can recover funds from the debtor that may otherwise have been paid to the preferred creditor. When a creditor files a preference action in North Carolina, they must provide evidence that: 1) the debtor owed the creditor money prior to the preferential payment; 2) the debtor made payment to the preferred creditor after owing the original creditor, and; 3) the payment was made within four months of filing bankruptcy or insolvency. When a creditor files a preference action, the court will hear the case and determine whether the creditor’s allegations are valid. If the court finds that the debtor’s payment to the preferred creditor was preferential, they will order the debtor to repay the original creditor the amount that was paid to the preferred creditor. In North Carolina, it is important for debtors to recognize that preference actions are possible, and that creditors may seek repayment from them if they have given preferential treatment to another creditor. Knowing this, debtors should be aware of their own present and past debt obligations and should avoid preferential payments if at all possible. Doing so can help them avoid the expensive and time consuming process of a preference action in the future.

Related FAQs

What is a non-dischargeable debt?
What is a creditors’ committee?
What is a post-petition claim?
What is a turnover order?
What are the consequences for creditors who violate creditors’ rights laws?
What is a foreclosure action?
What is a preference action?
What is a discharge order?
What is a reaffirmation agreement?
Can a lien be enforced against a debtor’s property?

What is a preference action?

Related FAQs

Related Blog Posts