The ABCs of defending bankruptcy preference claims.(CREDIT COLUMN)(Column)

Few businesses that extend unsecured credit to their customers have escaped the grasp of a bankruptcy trustee's power to recover "preferential transfers." Bankruptcy preference taw seems to represent the embodiment of the phrase "adding insult to injury." Long after a business has written-off an account because of the customer's bankruptcy, the business receives a friendly letter from a bankruptcy trustee requesting that the business pay him or her 90 percent of everything it received within 90 days before the bankruptcy. In a statute that makes little sense to most business owners, federal bankruptcy preference taw permits a bankruptcy trustee to recover certain payments made by a company that files a bankruptcy petition within 90 days after the payment was made.

Some business owners believe they have no choice but to write a check to the bankruptcy trustee. However, before you reach for your checkbook, you should review the standard defenses to preference claims contained in the Bankruptcy Code. A small amount of bankruptcy knowledge and a few hours analyzing the account may reveal complete defenses to all of the trustee's claims. The following is intended as a brief checklist of potential defenses to a preference claim.

* For business cases filed after October 17, 2005, a trustee cannot bring preference claims unless they aggregate more than $5,000.

* If you provided goods or services to the Debtor during the 90 days prior to its bankruptcy filing, this may represent an absolute defense to a preference claim to the extent of the dollar value of the goods or services provided. This is known as the "subsequent new value" defense. Timing is key, because the Bankruptcy Code does not permit the mere "netting" of all payments received and all goods or services provided during the 90-day preference period. Only goods or services provided after a particular preference ...