preference

Preference in law refers to a bankruptcy tool called recapture where a trustee can recover payments made by the debtor to creditors before the bankruptcy proceeding. In order for a trustee to recapture preference payments, the payments must have been made within a set period of time, usually 90 days for most creditors, and fulfill other requirements like the payments must exceed what the creditor would receive in a Chapter 7 liquidation action. The option to recapture payments prior to a bankruptcy filing exists in order to dissuade creditors from aggressively pursuing payments from insolvent debtors, increasing the chance of bankruptcy or undercutting other creditors’ claims. For more information on bankruptcy, click here. 

[Last updated in August of 2021 by the Wex Definitions Team]