One threshold question many have is, “what is an adversary proceeding?” An adversary proceeding is a separate lawsuit filed in a bankruptcy case to return funds that a trustee suspects may be preferential or fraudulent. The legislative intent is to protect creditors that may not have been paid because a debtor made payments only to certain creditors instead. The primary objective of the law is to treat all creditors prior to the bankruptcy evenly.
In an adversary proceeding, such as a preference claim, you have statutory defenses you can raise, including (1) new value and (2) ordinary course of business. These defenses prove you were dealing with the debtor during the preference period in a fair manner because you continued to provide goods and services after receiving payments and/or that you were paid during the preference period under substantially the same number of days from invoice to payment as previous payment periods for pre-preference aged receivables.
If you have been notified of a pending bankruptcy, The Williams Law Firm can help. We have years of experience representing creditors and businesses who wish to defend against adversary proceedings in a bankruptcy case. We will help you evaluate the strength of your defenses and determine how best to proceed to protect your interests in a cost-effective manner. We also work with lawyers from other jurisdictions as local counsel to move their admission pro-hac-vice and can assist in the local procedures and analysis.
Here is more detail on the Fraudulent Transfer and Voidable Preference Actions
Under the Bankruptcy Code, the trustee handling the bankruptcy case is able to sue to recover payments made to creditors within 90 days from the date of filing a bankruptcy claim if the payments qualify as “preferences.” In order to qualify, the payment must:
- Be made to an antecedent, which means previously incurred, debt.
- Be made while the debtor had fewer assets than liabilities.
- Be made to a non-insider creditor.
- Be made within 90 days from the date of filing a bankruptcy claim.
- Be more money than the creditor would have received if the bill had not been paid, but rather been paid through a hypothetical liquidation of the debtor’s assets in a Chapter 7 Bankruptcy.
If the debt appears to meet these qualifications, the trustee is allowed to file a lawsuit against the creditor to avoid and recover these payments. For insider creditors, the 90-day period is extended to one year.