Don’t Concede without Seeking Counsel for Preference Claims

As a business or individual spirals downward into insolvency, they may be anxious to relieve the stress of overwhelming delinquencies by using scarce dollars to pay certain favored creditors or creditors that are harassing them with threats of litigation: preference payments. Or, desperate to avoid losing assets to creditors, such a business or individual might transfer title to valuable assets to a family member or trusted friend as a “gift” or for less than fair value: fraudulent transfers.

Both the Bankruptcy Code and the New Jersey ABC statute protect creditors against preference payments and fraudulent transfers by vesting in the bankruptcy trustee or assignee for creditors “avoidance powers,” which empower them to “claw back” such payments and transfers for distribution among all creditors. 

However, if you are a target of a preference or fraudulent transfer claim (and such claims are commonplace), you need not ― you must not ― concede the issue prematurely upon mere receipt of a demand letter from the trustee or assignee. There are many valid defenses to such clawback claims that you need to be aware of, because properly asserting such defenses can reduce the claim – if not eliminate it entirely. If you are threatened or sued for a preference or fraudulent transfer, it is essential that you consult with an attorney who has expertise in this field.

Gary Marks has extensive experience defending parties targeted by trustees and assignees with preference or fraudulent transfer lawsuits and can counsel you on the right strategy to contest such claims. Contact us for a free consultation.