Here’s the scenario:
You have rendered services or sold goods to someone in the past.
Probably they still owe you money.
Then, they file bankruptcy.
Sometime within the next two years you open your mail and there is a summons and complaint seeking to have you pay back money to the bankrupt’s estate. Usually this is brought by the bankruptcy trustee.
Your initial reaction is one of shock and dismay. How can you be forced to pay back (often) tens of thousands of dollars that you rightfully earned, especially when you are still owed money by this debtor??
Preferential Payments Prior To Bankruptcy Are Recoverable
The answer lies in the “preference” section to the Bankruptcy Code, section 547. The overall purpose is to make it so a debtor cannot prefer one creditor over another by paying one more than another within the “preference period”. This “preference period” is 90 days prior to the commencement of the bankruptcy case (or, one year prior if you are related to the debtor and thus, an “insider”).
There are numerous defenses to a preference lawsuit and this is precisely when you need to hire an experienced bankruptcy attorney to protect your rights. It may be that some or none of the payments the
debtor made to you are recoverable. The analysis can be very complicated and thus you need the expertise of an attorney.
Trustees in bankruptcy can take many other actions against creditors as well, such as seeking turnover of assets that have been received (either by repossession, foreclosure, or other means) under certain circumstances.
If the bankruptcy case/trustee you’re dealing with was filed in the Greater Los Angeles Area,
for a consultation to figure out how best to handle your situation.