By: Phillip Wang, Esq.
One of the ancillary disputes that can occur when a debtor files for bankruptcy is whether specific payments or other transfers made before the petition filing can be recovered by the bankruptcy estate as preferential transfers. Our knowledgeable attorneys specializing in Bankruptcy and Creditors’ Rights at Strategy Law assist clients in navigating these conflicts to minimize their exposure.
The Ordinary Course of Business Defense
A widely used defense against preference claims is the ordinary course of business exception under Section 547(c)(2). The policy behind this provision is to maintain stability in business relationships and prevent creditors from being punished for normal transactions. If a payment was made in a manner consistent with previous dealings or industry norms, such as net-30 days for invoices, it may be protected from preference avoidance.
How the Subsequent Advance Rule Works
Another defense against a preference claim is the subsequent new value defense. This permits a creditor to reduce its preference exposure by proving that the creditory supplied the debtor with additional goods or services after receiving payment. As an example, if a creditor collects payments totaling $18,000 on December 1 and 5, and then offers $15,000 worth of unpaid services on December 12, they can deduct the $15,000 as new value not subject to preference liability. However, a subsequent $7,000 payment made on December 18, without any further advances, may be subject to preference recovery.
Why This Matters
For businesses or persons navigating a bankruptcy filed by a customer or client, understanding preference actions and available defenses can be the difference between keeping hard-earned revenue or facing significant repayment demands. At Strategy Law, our Bankruptcy and Creditors’ Rights attorneys are well-versed in these defenses and stay current with shifting interpretations in the courts. Whether you’re seeking to protect payments already made or secure priority for recent deliveries, we can help you assert your rights and minimize risk.
Contact us today to schedule a consultation with our experienced team and ensure your business is protected in the bankruptcy process.
This blog is written as of July, 2025. Recommendations and legal requirements are changing rapidly, so please continue to review our legal updates or review postings on relevant government websites.
All blogs on this site are for educational purposes only, do not constitute legal advice or opinion, and should not be applied to your situation, or any specific situation, without consultation with counsel. Strategy Law, LLP does not provide any legal advice concerning any matter discussed in a blog except upon formal engagement including, without limitation, execution of Strategy Law, LLP’s formal legal services agreement, and with respect to specific factual situations. No blog constitutes a guaranty, warranty, or prediction regarding the result of any legal matter discussed in the blog or any representation
