1. Start with the Elements of a Preference Claim
A payment made before bankruptcy does not become avoidable simply because it occurred near the petition date. Before avoiding a transfer, the trustee must conduct reasonable due diligence and consider known or reasonably knowable Section 547(c) defenses.
What Must Be Established
- The debtor transferred an interest in property to or for the benefit of a creditor.
- The transfer was for an antecedent debt and occurred while the debtor was insolvent.
- The transfer met the timing rule and allowed the creditor to receive more than in the statutory Chapter 7 comparison.
The Lookback Period Depends on the Creditor
- For an ordinary creditor, Section 547 generally reaches transfers made on or within 90 days before the bankruptcy filing.
- A transfer between 90 days and one year before filing may be covered if the creditor was an insider when the transfer occurred.
- Timing should be reviewed within the broader bankruptcy and insolvency context rather than treated as automatic liability.
2. The 90-Day Insolvency Presumption Is Only One Element
Section 547 presumes that the debtor was insolvent during the 90 days immediately before the petition date. That presumption addresses insolvency, but it does not establish the rest of the preference claim.
How the Presumption Fits the Claim
| Issue | Preference Analysis |
|---|---|
| Timing | The transfer must fall within the applicable statutory period. |
| Insolvency | The debtor is presumed insolvent during the 90 days immediately before filing. |
| Other elements | The party seeking avoidance must still establish the remaining requirements. |
Timing
- Preference AnalysisThe transfer must fall within the applicable statutory period.
Insolvency
- Preference AnalysisThe debtor is presumed insolvent during the 90 days immediately before filing.
Other elements
- Preference AnalysisThe party seeking avoidance must still establish the remaining requirements.
The Burdens Are Divided
- The trustee bears the burden of proving avoidability under Section 547(b).
- The creditor or other party asserting a Section 547(c) defense bears the burden of proving that defense.
- Transaction records can become central when a bankruptcy litigation dispute develops.
3. Transaction Records Can Support Preference Defenses
A creditor should not assume that a transfer within the lookback period must be repaid. Section 547(c) provides defenses that depend on the timing, purpose, and history of the transaction.
Common Statutory Defenses
- A contemporaneous-exchange defense examines whether the parties intended a contemporaneous exchange for new value and substantially completed it that way.
- An ordinary-course defense focuses on the debt and payment under the statutory ordinary-course standards.
- A subsequent-new-value defense may apply when the creditor provided qualifying new value after receiving the challenged transfer.
Match the Records to the Defense
- Invoices and account statements can show when the debt arose and when payment occurred.
- Contracts, payment histories, and communications can help show how the parties normally conducted business.
- Shipping, delivery, or service records may document new value provided after a challenged payment.
4. A Filed Preference Complaint Starts a Separate Procedure
A demand letter is not the same as an adversary complaint. Once an avoidance action is filed, the defendant should review the summons, complaint, national rules, local rules, and any court order affecting the response.
Response Timing Matters
- An action to recover money or property generally proceeds as an adversary proceeding under the bankruptcy rules.
- Rule 7012 generally requires a defendant to serve an answer within 30 days after the summons is issued unless the court sets another time.
- The summons and applicable local procedures should be checked before calculating the response date.
Defenses Should Be Identified Early
- Federal pleading rules apply in adversary proceedings through the bankruptcy rules.
- Applicable affirmative defenses should be evaluated early to reduce later pleading or waiver disputes.
- A creditor may also need to coordinate the response with broader creditor rights issues in the case.
5. The 90-Day Period Is Not the Lawsuit Deadline
The preference lookback period identifies transfers that may fall within Section 547. Section 546(a) separately limits when an avoidance action may begin, so the two periods should not be confused.
Section 546 Sets a Separate Limitation Period
- The deadline depends on the order for relief, certain trustee appointments or elections, and when the case closes or is dismissed.
- Review the bankruptcy docket before calculating the limitation period.
- This timing issue can overlap with broader insolvency and reorganization strategy.
Recovery Is a Separate Step
- Section 550 governs recovery to the extent a transfer has been avoided.
- The trustee may recover the transferred property or, if the court orders, its value for the benefit of the estate.
- Different rules can apply to an initial transferee and later transferees, so the transfer chain matters.
6. Frequently Asked Questions
Does receiving payment 89 days before bankruptcy mean I must return it?
No. The payment falls within the ordinary 90-day lookback period, but the statutory elements still must be proved and a defense may apply.
Can a preference claim involve a payment made more than 90 days before filing?
Yes, in limited circumstances involving insiders. A transfer between 90 days and one year may be covered if the creditor was an insider when the transfer occurred.
Do I have to pay a preference demand before a lawsuit is filed?
A demand does not by itself establish liability. The transfer, statutory elements, defenses, and procedural posture should be reviewed before deciding how to respond.
Can a preference claim be settled?
Yes. Preference disputes may be settled, although a trustee or debtor in possession may need bankruptcy-court approval of a compromise under the applicable procedures.
7. Review a Preference Claim with SJKP
SJKP’s attorneys can review the challenged transfer, transaction history, insolvency issues, statutory defenses, and procedural deadlines before a response is prepared. If the dispute proceeds as an adversary case, the firm can assess the complaint, develop applicable defenses, and address settlement or recovery issues within the federal bankruptcy framework.
02 Oct, 2026
