Bankruptcy Preference Claims
January 25, 2011 By Marc Fabito, Esq. - Protect Law Group
Someone looking to shop at the Circuit City located on Van Ness Avenue in San Francisco, CA may be in for a surprise, when s/he sees it is no longer there.
The store closed around 2008 when Circuit City Stores, Inc. filed bankruptcy. It used to be a treat to shop at Circuit City with its free parking, big screen tvs, and in person haggling on pricing with sales staff.
Circuit City Stores, Inc. filed Chapter 11 bankruptcy, and in November 2010, when the 2 years deadline for filing preference claims crept up, the trustee for the bankruptcy estate filed numerous actions against vendors who provided services to Circuit City Stores, Inc.
Preference actions allow a trustee to get back from creditors payments made by a debtor during the period before the bankruptcy filing. Preference claims fix preferential treatment for the benefit of all creditors.
11 USC Section 547 discusses preference actions. To get money back from creditors, the trustee establishes the payment was: (1) transfer, (2) of an interest of the debtor in property, (3) made to or for a creditor’s benefit, (4) for or on account of a debt incurred before the alleged preferential transfer, (5) while the debtor was insolvent, (6) within 90 days or 1 year, in the case of an insider, and (7) resulted in the creditor getting more funds than it otherwise would have in a Chapter 7.
According to Bankruptcy Code Section 101, a transfer is the creation of a lien, retention of title as a security interest, foreclosure of a debtor’s equity, or disposing of property or property interest. Whether a transfer is made while a debtor is insolvent depends on whether liabilities exceed assets.
A creditor in bankruptcy does not get more than it otherwise would in a Chapter 7 so a trustee does not recover payments from a secured creditor. Bankruptcy estate property includes all legal and equitable debtor interests at case commencement according to 11 USC Section 541.
All unsecured creditors are to receive fair and equal treatment. Payments made by a debtor to a creditor within 90 days of a bankruptcy filing may be a preferential or fraudulent transfer of funds. A preference avoidance action establishes that payments were preferential and demands return of payments to be redistributed equitably among all creditors.
Upon receipt of a demand for return of payments by a debtor who declares bankruptcy, look to these defenses:
• Goods or services delivered and money received at essentially the same time.
• New value advanced after an alleged preferential payment.
• Money exchange for goods made in the ordinary course of business.
ABOUT THE AUTHOR: Marc Fabito, Esq. - Protect Law Group
Some of ProTecT Law Group’s Attorneys are admitted to multiple state bars throughout the U.S., to the United States Tax Court and to the United States District Court. ProTecT Law Group Attorneys have honed their skills and competence by obtaining advanced degrees, serving on arbitration panels, and receiving special training in litigation, tax, negotiations and restructuring.
Copyright Marc Fabito, Esq. - Protect Law Group
More information about Marc Fabito, Esq. - Protect Law Group
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Circuit City Stores, Inc. filed Chapter 11 bankruptcy, and in November 2010, when the 2 years deadline for filing preference claims crept up, the trustee for the bankruptcy estate filed numerous actions against vendors who provided services to Circuit City Stores, Inc.
Preference actions allow a trustee to get back from creditors payments made by a debtor during the period before the bankruptcy filing. Preference claims fix preferential treatment for the benefit of all creditors.
11 USC Section 547 discusses preference actions. To get money back from creditors, the trustee establishes the payment was: (1) transfer, (2) of an interest of the debtor in property, (3) made to or for a creditor’s benefit, (4) for or on account of a debt incurred before the alleged preferential transfer, (5) while the debtor was insolvent, (6) within 90 days or 1 year, in the case of an insider, and (7) resulted in the creditor getting more funds than it otherwise would have in a Chapter 7.
According to Bankruptcy Code Section 101, a transfer is the creation of a lien, retention of title as a security interest, foreclosure of a debtor’s equity, or disposing of property or property interest. Whether a transfer is made while a debtor is insolvent depends on whether liabilities exceed assets.
A creditor in bankruptcy does not get more than it otherwise would in a Chapter 7 so a trustee does not recover payments from a secured creditor. Bankruptcy estate property includes all legal and equitable debtor interests at case commencement according to 11 USC Section 541.
All unsecured creditors are to receive fair and equal treatment. Payments made by a debtor to a creditor within 90 days of a bankruptcy filing may be a preferential or fraudulent transfer of funds. A preference avoidance action establishes that payments were preferential and demands return of payments to be redistributed equitably among all creditors.
Upon receipt of a demand for return of payments by a debtor who declares bankruptcy, look to these defenses:
• Goods or services delivered and money received at essentially the same time.
• New value advanced after an alleged preferential payment.
• Money exchange for goods made in the ordinary course of business.
ABOUT THE AUTHOR: Marc Fabito, Esq. - Protect Law Group
Some of ProTecT Law Group’s Attorneys are admitted to multiple state bars throughout the U.S., to the United States Tax Court and to the United States District Court. ProTecT Law Group Attorneys have honed their skills and competence by obtaining advanced degrees, serving on arbitration panels, and receiving special training in litigation, tax, negotiations and restructuring.
Copyright Marc Fabito, Esq. - Protect Law Group
More information about Marc Fabito, Esq. - Protect Law Group
View all articles published by Marc Fabito, Esq. - Protect Law Group
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
