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.

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

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