Much to a creditor’s dismay, Section 547(b) of the Bankruptcy Code empowers a bankruptcy trustee (or other representative of a bankruptcy estate) to avoid and recover certain payments made to creditors within 90 days prior to the debtor’s bankruptcy filing (or within one year prior to the filing if the creditor qualifies as an “insider” of the debtor). Luckily, from a creditor’s perspective, several statutory defenses to these so-called “preference actions” are built into the code as well.
Arguably, one of the most potent defenses is set forth in Section 547(c)(4). This “new value” defense enables a recipient of a preferential payment potentially to reduce its liability to the extent of the value of goods or services such creditor provided to the debtor on an unsecured basis during the applicable pre-bankruptcy period.
