What is a preference action?

A preference action is a legal action that creditors can bring in some states, including Alaska, when a debtor has paid off a portion of their debt to one or more of their creditors before filing for bankruptcy. The creditor who has been paid off files a preference action in the bankruptcy court, seeking to have that payment returned as a preferential payment. In Alaska, the statute of limitations for a preference action is two years from the date of the payment. This means that the creditor must file the action within two years of the payment being made. The creditor must prove in court that the payment was a preferential payment and that the debtor was aware of their impending bankruptcy when they made the payment. If the court finds that the payment was preferential, the court will order the debtor to return the payment to the creditor. It is important to note that Alaska law only allows creditors to take preference action in certain circumstances. For example, the creditor must have a valid claim against the debtor that is enforceable in Alaska. Additionally, the payment must be made to a creditor within 90 days of the debtor filing for bankruptcy. Finally, the debtor must not be able to prove that they were financially insolvent at the time of the payment.

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