Definition from Nolo’s Plain-English Law Dictionary

In bankruptcy, a debtor's payment to a creditor within a defined period of time before filing for bankruptcy -- three months for regular commercial creditors and one year for insider creditors, such as friends, family members, and business associates. Because a preference gives that creditor an edge over other creditors in the bankruptcy case, the bankruptcy trustee can get the preference back and distribute it among all of the creditors.

Definition provided by Nolo’s Plain-English Law Dictionary.