Faulkner v. Broadway Festivals, Inc. The recent bankruptcy case for Northern District of Texas, Faulkner v. Broadway Festivals, Inc., Adv. Proc. 20-05031 (Bankr. N.D. –.
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Creditors face unanticipated risks when customers file for bankruptcy protection. One such risk is “preference liability,” where the bankruptcy estate seeks to claw-back payments made to a creditor within the 90-day period before the bankruptcy filing. In this circumstance, a creditor’s first notice of its potential obligation to pay back such “preference” payments is the receipt of a demand letter.
Understandably, the receipt of a preference demand letter may be met with frustration and possibly anger by a creditor that rightfully provided its customer with goods or services. Receiving a demand letter, or even being served with a complaint, however, does not mean that the creditor will be required to pay back the funds in question. Rather, the U.S. Bankruptcy Code contains several provisions that, if correctly used, can shield a creditor from “preference” liability. In fact, in December 2020, creditors rece
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Your business provided goods or services to another company.
Shortly thereafter, that company then files for bankruptcy, and
owes your business substantial sums of money. After the filing of
the bankruptcy action, you then receive a letter from counsel
demanding that your business return
all of the money the
debtor paid to you in the 90 days before it filed for
bankruptcy.
Can this really be true?
Unfortunately, it happens frequently. Under Section 547(b) of the Bankruptcy Code, a
debtor may avoid a transfer it paid to creditors, trade vendors,