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Defending Preference Defending Preference Payment DemandsPayment Demands
Real Life Examples
Cheryl GilbertAPPA B&F ConferenceSeptember, 2005Portland, Oregon
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Introduction Introduction
What to do when you receive a demand for return of a preference payment– Cases filed before October 17, 2005– Cases filed on or after October 17, 2005
(Identified by NEW!)Formulating a response
– Sample lettersWhen to yell for help!
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DisclaimerDisclaimer
I am not an attorney and nothing expressed during this presentation constitutes legal advice.
You should consult your attorney for legal advice.
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What to do when you receive a What to do when you receive a preference demandpreference demandDon’t ignore it!
– You may make your situation worse if you ignore it.
Don’t just give the money back!– You have several avenues of defense open to
you- use one!
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What to do when you receive a What to do when you receive a preference demand (contd.)preference demand (contd.) First- Determine if you received a payment
within 90 days of the bankruptcy filing. – If you didn’t, that is your defense! (See letter #1).
If you did, determine your best defense. Was the payment:– Less than $5,000? NEW!
– Made in the ordinary course of business?
– Made according to ordinary business terms? NEW!
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What to do when you receive a What to do when you receive a preference demand (contd.)preference demand (contd.)If the payment was under $5,000 it is not
subject to a preference demand. (See letter #2). NEW!
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Which Defense to Use?Which Defense to Use?
If the “preference” payment was not unusual when compared to this customer’s payment history, the “ordinary course of business” defense will probably apply
If the “preference” payment was unusual for this customer, the “ordinary business terms” defense may apply
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Ordinary Course of Business Ordinary Course of Business DefenseDefense To determine if the “ordinary course of business”
defense applies, the court will consider the past payment history between you and this customer.
The test of “ordinary course of business” is- did the customer pay in the same manner as they have in the past?– If the payment was late, have they paid late before?
– Keep this in mind when making payment arrangements with a customer you suspect may be headed for bankruptcy!
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Ordinary Course of Business Ordinary Course of Business Defense (Contd.)Defense (Contd.)If the customer changed their payment
habits in the 90 days prior to the bankruptcy, “ordinary course of business” may not apply.– Things to look out for:
A payment in full when the customer normally made partial payments
A late payment when they normally paid on time, or an on-time payment when they normally paid late
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Ordinary Course of Business Ordinary Course of Business Defense (Contd.)Defense (Contd.)If “ordinary course of business” doesn’t
seem to apply, “ordinary business terms” may.
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Ordinary Business Terms Ordinary Business Terms Defense Defense NEW!NEW!The “ordinary business terms” defense
takes into consideration the payment terms of creditors in the same or similar industry; it is not specific to the payment history of this customer.
Use of this defense may require a demonstration that early or late payments are “ordinary” in the industry.
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What’s Next?What’s Next?
After deciding which defense to use, send the attorney or trustee a letter– Enclose copies of statements to support your
defenseWait and see what happens!
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When to “Holler for Help”!When to “Holler for Help”!
You need to consult your attorney when:– You’re not sure which defense to use– You don’t think you have a defense– Your defense is challenged by the trustee or
the debtor’s attorneyYou may want to consult an attorney even
if you feel confident of your defense if a significant amount of money is involved
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Where to Get More InformationWhere to Get More Information
The “Bankruptcy Code” is United States Code Title 11– http://www.ncwb.uscourts.gov/opinions/codeindx.
html An abbreviated version of the Code is available
– (Bankruptcy) Mini Code, Mini Rules Published by AWHFY, L.P. 3950 Doniphan, Ste. E El Paso, Tx. 79922
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Defending Preference Defending Preference Payment DemandsPayment Demands
Real Life Examples
Cheryl GilbertAnaheim Public [email protected] 765-5133
