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January 25, 2017

What You Need to Know to Avoid Workout Payments as Preferential Transfers

By Shane G. Ramsey

American Bankruptcy Trustee Journal

Reprinted with permission from the American Bankruptcy Trustee Journal

The scenario is not unique. Prior to filing for bankruptcy, the debtor falls behind on payments to one of its vendors. In order to secure continued business with such vendor, the debtor enters into a payment plan agreement with the vendor to satisfy its past due obligations. The debtor later files for bankruptcy and the trustee seeks to avoid the payments made pursuant to the payment plan as preferential transfers. The question then becomes whether the payments are exempted from avoidance based upon section 547(c) (2)'s ordinary course of business defense.