Today’s Friday Fact is a bankruptcy law term. You may wonder why I’m talking about that but it really is apropos to my life this week. I’m going on a girls only cruise in May and we all know each other from our legal work. One of the women said we need a name and t-shirts (and I’m sooo not a t-shirt wearing girl) and she batted around a few names and finally came up with The Preferential Transfers. I know. I know. It’s weird but there ya go. I’m only along for the ride.
Anyway, you may be asking what a preferential transfer is. I’m going to give you the short story on it- not all the intricacies. It’s basically a 90 day period prior to filing a bankruptcy where the court can look back and see what payments and transfers the debtor made in that period and recover those for the benefit of all the creditors not just the one who got preferential treatment.
The payment or transfer would have had to be for a pre-existing debt and the debtor had to be insolvent at the time of the transfer. It also has to be such that the person the debtor paid got more in funds or value than they would’ve gotten in the bankruptcy case itself. The 90 days is extended for a year for insiders like family, close friends, business partners, etc.
There are several exceptions to the preferential transfer rule which include payments in the ordinary way the debtor and the person did business- in other words, if the debtor always paid that business or person in the same manner. Another exception is new value. This is like if the debtor has a business and receives stock or merchandise during the 90 day period and pays for the stock upon delivery.
This is kind of a complicated, nuanced area of law so if you ever want to use this sexy term in a story, let me know and I’ll walk you through it.
Happy long weekend!