"Preferential Payment Bankruptcy"

A preferential payment is a payment made to a creditor that is given preference over other creditors in the event of bankruptcy. When a company files for bankruptcy, all creditors are supposed to be treated equally. However, sometimes a creditor will receive a preferential payment before the bankruptcy filing. This can happen when the debtor pays one creditor in full while leaving others unpaid. Preferential payments can also occur when the debtor pays one creditor more than it owes to another creditor.

Preferential payments give certain creditors an unfair advantage over others and can jeopardize the fairness of the bankruptcy process. When a debtor makes a preferential payment, it must notify all other creditors of the payment so they can object if they believe it is unfair. If a court finds that a preferential payment was made unfairly, it can order the debtor to repay the money to the affected creditors.

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