A bankruptcy preference is a transfer made shortly before the case is filed that the trustee can take back from one creditor and share with all the other creditors. The transfer must be of money or property in which the debtor has an interest. It must be made to a creditor owed money by the debtor. The transfer must be more than the creditor would receive in a Chapter 7 distribution. Finally, it must be made within a certain period of time. 11 USC §547 governs the preference rules under federal law.
The preference period is 90 days before filing unless the debtor has a special relationship with the creditor and is considered an insider. Insiders are close family members, business partners, or a corporation of which the debtor is a person in control such as an officer or director. The preference period for transfer to an insider is expanded by law to one year instead of 90 days. (more…)