What are preferential payments in bankruptcy?

In bankruptcy, a preferential payment is a payment made to one creditor that gives that creditor a better status than other creditors. Preferential payments can be made in the form of cash, property, or services.

Preferential payments are often made before a bankruptcy filing, but they can also be made during the bankruptcy process. If a preferential payment is made within 90 days of the bankruptcy filing, it may be considered voidable by the court. This means that the payment may be reversed, and the debtor may have to repay the money to the trustee.

Preferential payments can create problems for both debtors and creditors. For debtors, they can increase the amount of money owed to creditors. For creditors, they can create unfair treatment among different groups of creditors.

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