Preferential Payments to Creditors and Ordinary Business Defense

A creditor, who receives a significant payment right before a debtor files bankruptcy might believe he is entitle to keep the money. After all he no doubt provided legitimate goods or services that the funds are paying for. When such a payment is over $600.00 however and is received within three months of the bankruptcy filing (or within a year if the creditor is considered related to the debtor) this can be considered a preferential payment, and while it usually comes as a surprise to the creditor, he may be contacted by a bankruptcy trustee, who wants him to give the money back, so the funds can be divided more fairly among all the creditors.

If this lender contacts a bankruptcy lawyer, he might be advised to raise the defense that the funds were received in the ordinary course of business. This means that the bankrupt debtor was following an established pattern in making the payment. Thus if a business man customarily pays a supplier six months after delivery and all at once decides to pay a year's debt right before he files bankruptcy, his creditor could have a problem. Even if the payment follows the normal rate, the creditor could still find himself with a preferential payment, if he took unusual steps to collect the debt during the three month period, such as bringing a lawsuit.