What is a preference action?

A preference action is a claim brought by a creditor against a debtor in Washington State that seeks to recover money or other property from the debtor. Preference actions are based on the theory that the debtor transferred assets to the creditor in order to satisfy a debt in preference over other creditors. In other words, the creditor received more than it would have received if the assets had been distributed among all creditors in a fair manner. Preference action claims often arise when a debtor declares bankruptcy. When this happens, the bankruptcy trustee may bring a claim against a creditor for the return of assets received by the creditor in the 90 days prior to bankruptcy. These types of claims are based on the idea that a debtor should not be able to favor one creditor over others by giving that creditor preferential treatment. In Washington State, preference actions must be brought within four years after the transfer of assets to the creditor was made. In order for the claim to be successful, the creditor must prove that the transfer was made with the intent to prefer the creditor over other creditors. The creditor must also prove that the debtor was insolvent at the time of the transfer and that the creditor received more than it would have otherwise been entitled to have received in a bankruptcy proceeding.

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