Section 547(c)(1)

Decoding the Code: Preferences Under Section 547 of the Bankruptcy Code

This is the first post in our “Decoding the Code” Series.  The Series will cover various sections of the Bankruptcy Code in a clear and easy to understand manner.  Our first stop:  preferences.

Why do I care about preferences? 

Scenario 1:  Your company sells products and services to a large retail electronics chain.  You have been doing business with the electronics chain for years and they have been paying your invoices as they come due.  Recently, however, their payments have become sporadic and you are worried they have fallen on financial hard times.  You soon learn that they have filed for bankruptcy.  You know you have received payments from the now-bankrupt electronics chain within the last three months and you have heard something about preference claims but what does it all mean?

Scenario 2:  You are a claims trader interested in buying claims filed against bankrupt companies.  You know that some claims you are thinking about buying could be subject to preference litigation but are there ways to defend against it?

Let’s decode the basics: READ MORE