What are preferential payments in bankruptcy?
Preferential payments in bankruptcy are payments made to creditors before filing for bankruptcy. These payments can have a significant impact on the outcome of the bankruptcy, as they can leave other creditors with fewer assets to collect from the debtor. Preferential payments are generally prohibited by law and must be identified and reversed when a debtor files for bankruptcy in order to ensure that all of their creditors are treated fairly.
In most cases, preferential payments occur when a debtor makes large payments to one creditor ahead of filing for bankruptcy, or pays off certain debts while leaving others unpaid. This practice is considered an unfair preference since it gives some creditors more money than others even though they were likely owed similar amounts at the time of filing for bankruptcy.'
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