A bankruptcy trustee or debtor-in-possession may be able to avoid certain preferential transfers made by the debtor during the 90 days (one year for insiders) prior to the filing of a bankruptcy case unless a defense applies. In order to recover an alleged preferential payment, the following must be proven:

1. payment was to or for the benefit or a creditor
2. payment was for a past-due debt,
3. payment was made when the debtor was insolvent
4. payment was made within 90 days before the bankruptcy (one year for insiders)
5. payment enabled the creditor to receive more than it would have received if the case were a chapter 7 case

The most common defenses to a preference are:

1. payment of a debt incurred in the ordinary course of business and payment is made in the ordinary course of business or according to ordinary business terms
2. the transfer was intended to be a contemporaneous exchange
3. to the extent that after the transfer, the creditor supplied "new value"
4. the aggregate value of all property that constitutes the transfer is less than $5,000.00

The debtor generally has two years from the date of the bankruptcy case filing to file a preference action. A preference action for less than $10,000.00 must be filed in the jurisdiction in which the creditor resides.