The Preferential Transfer Dragon
Businesses face the risk that a customer will go bankrupt owing it money. What a business may not know is that it may have to pay back all the money the customer paid during the 90 days preceding the bankruptcy filing. A bankruptcy trustee will consider the payments preferential transfers. This article was written to address this situation. [Article approx. 15,000 words] More
To be forewarned is to be forearmed
If you’re facing a preferential transfer lawsuit for the first time, this article is written primarily for you. You can go online to find a lot of information on the subject, but what this article covers is the experience of one business that faced this problem for the first time and what it went through. The experience the business faced wasn’t a worst case scenario, but it came close enough.
The people and businesses who would benefit the most from this article are the least likely to buy it. They have customers who could potentially go bankrupt, but have enough on their plate without having to deal with the hassle of considering the ramifications of a preferential lawsuit. If you’re in this category, then arguably the single most important thing you can do is put in place consistent and appropriate billing practices and the article explains why. It will take you about 45 minutes to read the article and put you that much further ahead of the game.
For an article of this length the price is kind of high, but it’s the best deal you’ll get all day if you’re dealing with a lawsuit of this type for the first time. Of course, you may be in a position where you can afford to throw away $19,000. That’s about what it cost the business owner in this article to learn the lessons presented. You, on the other hand, can learn these lessons for the three dollars it costs to buy this article and the time it will take to read it and read some of the included references. If you’re facing this situation for the first time and this article turns out to be completely useless, the authors are quite confident you won’t give it a second thought after the hell you’re about to go through.
Many, and maybe most, people who face lawsuits tend to give in because they fear the law. In this case paying up without a fight could be a valid option, but you would be better off making the decision for rational reasons instead of out of fear.
This is a direct quote from the website of Fox Rothschild LLP Attorneys at Law out of Wilmington Delaware. The title of the blog article is “Money Center Opinion – The Multiple Sovereigns in the United States and Bankruptcy” The link is: https://delawarebankruptcy.foxrothschild.com/articles/opinions/
"If you are a named defendant in a preference action, the first step is to make sure you understand the law surrounding preference litigation. Educate yourself, then have your lawyer start a dialogue with the Trustee’s lawyer. The vast majority of preference actions settle or are dismissed once the parties understand whether there were actual preference payments or not. If you are in the lucky position to have not yet had a client or customer go through bankruptcy, (1) count yourself lucky and (2) start making plans to protect yourself for when one of them does go under. It isn’t pretty, but since most of us aren’t foreign sovereigns [the article concerns federally recognized Indian Tribes and sovereign nations], we need to plan carefully to reduce our preference exposure."
That is about as good a way to put it as you can get. A little bit of education on your part can go a long ways. Dumping your problems into a lawyer’s lap in the blind hope that they’ll make it all come out right will not be a sufficient response. You control the way your business is run, your lawyer doesn’t.
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