One of our customers filed for bankruptcy protection and we received several payments during the 90 day period immediately before the filing date. Do we have to return each of these payments as preferences?

Answer: There are a number of ways to answer this question. One is to say that you have to do nothing until you receive some form of notice from an attorney, the trustee, or the Bankruptcy Court. The second answer is that even if every payment were preferential [as defined in the bankruptcy code], there is a fair chance that the debtor in possession may not pursue recovery of such preference payments. Another way to answer this question is as follows:

In a Bankruptcy, a trustee has the power to avoid preferential transfers that occurred during the preference period. Preference avoidance power is granted to ensure an equitable distribution of the debtor's assets. Fortunately, not all transfers made within the preference period are avoidable by the trustee. For general unsecured trade creditors, the most potent defenses against demands made to return transfers made during the preference period include these:

• The new value exception.
• The ordinary course of business exception
• The contemporaneous exchange of value exception

Creditors usually need an attorney to effectively assert one or more of these defenses in response to a demand that an allegedly preferential transfer be returned to the estate of the bankrupt debtor.