Most practitioners in the Eastern District have encountered the client who is a creditor and has been served with a summons and complaint brought by a trustee for the recovery of a preferential payment.[1]� A preferential transfer or “preference” is a transfer that is made to a creditor by a debtor within the 90-day period preceding the bankruptcy filing and is in payment of an antecedent debt that enables the creditor to receive more than it otherwise would under a Chapter 7 liquidation.
The client wants to know what is the nature of the action (since the client is still owed money) and how can I defend this? Section 547 sets forth the elements of the cause of action and certain defenses. The interpretation of portions of the statute has long been the subject of debate. Until the last several years in this district, the case law had been devoid of clear direction with respect to the interpretation of the elements of �547(c)(2) of the Bankruptcy Code – the ordinary course of business defense to the avoidance powers of a trustee.
