Commercial Chapter 11 filings held near decade-high levels for the second consecutive year in 2025, with 7,940 filings according to Epiq AACER data, and 2026 opened even hotter: first-quarter commercial Chapter 11s were up 37% year over year. That headline has been widely covered. What hasn’t been covered is the mechanical consequence that follows it: the preference wave.

Avoidance actions lag bankruptcy filings by twelve to twenty-four months. Trustees, liquidating trusts, and creditors’ committees typically file preference actions near the two-year deadline imposed by § 546(a) of the Bankruptcy Code, often in a single mass filing that sweeps in every vendor who received a payment in the ninety days before the petition date. Two consecutive years of elevated filings already guarantee the demand-letter volume, whatever the rest of 2026 brings. The vendors who got paid by struggling customers in 2024 and 2025 are about to start receiving those letters in bulk.

If your company sold goods or services to a customer that filed Chapter 11 in the last two years, or to a customer that looks like it might, the window to prepare is open right now. It closes the day the demand letter arrives.

Why the Wave Is Predictable

A quick refresher for the non-lawyers. Under § 547(b), a trustee can claw back payments a debtor made in the ninety days before its bankruptcy filing (one year for insiders), on the theory that those payments “preferred” one creditor over others. The trustee doesn’t have to prove you did anything wrong. You shipped goods, you invoiced, the customer paid, and eighteen months later someone demands the money back, with the implicit threat of litigation in a distant bankruptcy court.

Two features of the current cycle make the coming wave bigger than usual.

First, volume. More filings in 2024 and 2025 means more estates, and nearly every estate of any size runs a preference program. Even in straight liquidations, estates are being administered to maximize recoverable value, and preference claims are an asset like any other. Often they are one of the last assets standing.

Second, economics. Avoidance actions are increasingly prosecuted by contingency-fee counsel retained by liquidating trusts. When the pursuing firm’s cost of sending a demand letter is effectively zero, even mid-five-figure claims get pursued. The days when a $75,000 exposure flew under the radar are over.

The Defenses That Win Are Built Before the Demand Arrives

The Bankruptcy Code gives recipients real defenses, and it puts the burden of proving them on you, the creditor. That burden allocation is why everything in this article comes down to records. The two most powerful defenses are won or lost on documentation that exists (or doesn’t) long before anyone sends a demand.

Ordinary course of business (§ 547(c)(2)). Payments made in the ordinary course of business between the parties, or on ordinary industry terms, are protected. The defense lives entirely in payment history data: invoice dates, due dates, payment dates, and the pattern between them over the life of the relationship.

Here’s the uncomfortable part. The things a good credit department does when a customer starts sliding are exactly the things that destroy an ordinary course defense: tightening terms, demanding payment before shipment, escalating collection calls, holding orders. A payment extracted under pressure, on compressed terms, outside the historical pattern, is the textbook preferential transfer. Smart credit management and preference exposure sit in direct tension, and companies that don’t understand that tension often make their situation worse in the final ninety days. The answer isn’t to stop managing credit risk; it’s to manage it with eyes open and to document the baseline relationship thoroughly, so that what was actually ordinary can be proven later.

Subsequent new value (§ 547(c)(4)). If you kept shipping after receiving a payment, the value of those later shipments offsets your exposure dollar for dollar (generally, to the extent the new value went unpaid). This is the workhorse defense for trade vendors, and in our experience a properly constructed new value ledger routinely reduces exposure by 40–70 percent, and sometimes to zero.

But the ledger is only as good as the underlying records. It requires invoice-level detail: what shipped, when it shipped, what it was worth, and how it maps against each challenged payment. Vendors who purge shipping records and invoices after a year, or whose ERP data can’t tie deliveries to invoices, walk into settlement negotiations with a defense they can’t prove.

Prepayment and contemporaneous exchange (§ 547(c)(1)). A true advance payment (wire before ship) isn’t a preference at all, because it isn’t a payment on an antecedent debt. Done right, moving a distressed customer to genuine prepayment terms takes those payments outside the preference statute entirely. For near-simultaneous exchanges like COD, § 547(c)(1) protects payments intended as, and substantially contemporaneous with, an exchange for new value. In both cases the paper trail is everything: the defense turns on showing what the parties intended and when payment actually occurred relative to shipment. If you moved a distressed customer to prepayment terms, the emails and terms documentation memorializing that arrangement are the defense.

The Trustee Has Homework Too

One more feature of the modern statute that vendors should know: since the 2019 amendments, § 547(b) requires a trustee to conduct reasonable due diligence and take into account a party’s known or reasonably knowable affirmative defenses before filing suit. That requirement has teeth only if your defenses are knowable, which is the statutory reason to get your ordinary course analysis and new value ledger in front of the trustee early. A vendor who puts a credible defense package on the table before suit is filed isn’t just negotiating; it’s invoking the trustee’s own statutory obligation.

The “Do This Now” Checklist

For any customer that has filed, or that your credit team is watching:

1. Preserve everything. Payment history, invoices, shipping records, and credit-department correspondence going back at least two years. Suspend routine document destruction for these accounts. The emails with the customer’s AP department that seem disposable today are the evidence that establishes your ordinary course baseline tomorrow.
2. Calculate your own baseline before anyone else does. Run the days-to-pay analysis on the full relationship history. Know your historical average, your range, and how the ninety-day-window payments compare. You want to see your exposure the way plaintiff’s counsel will see it, and you want to see it first.
3. Build the new value ledger now. Map every post-payment shipment against every challenged payment while the records and the institutional memory are fresh.
4. Flag the ninety-day window. For each customer filing, identify every payment received in the ninety days before the petition date. That’s the universe of exposure; quantify it.
5. Don’t respond to a demand letter without counsel. Early informal responses (“we were just collecting what we were owed”) routinely lock in positions that undercut the ordinary course defense. The first substantive communication with the trustee should be strategic, not reflexive.
6. Check the math on timeliness, size, and venue. Not every demand is timely under § 546(a). Preferences below the statutory floor of § 547(c)(9) ($8,575 in aggregate for non-consumer cases filed on or after April 1, 2025; $7,575 for earlier filings) can’t be avoided at all. And § 1409(b) provides that smaller claims ($31,425 for cases filed on or after April 1, 2025; $27,750 for earlier cases) must generally be brought where the defendant resides rather than in the debtor’s bankruptcy court, a protection courts have applied to preference actions in many, though not all, jurisdictions. Each of these is a meaningful piece of leverage that plaintiffs’ counsel would prefer you not know about.

The Settlement Reality

Here’s the practical truth: the overwhelming majority of preference claims settle. Very few are litigated to judgment. Which means the real question in nearly every case is not “will we win at trial” but “what does the data say, and who has it.”

A vendor who responds to a demand with a clean ordinary course analysis and a documented new value ledger settles for a fraction of face value, often for nuisance value, and sometimes for a walkaway. A vendor who responds with nothing settles on the trustee’s numbers. Same statute, same defenses, wildly different outcomes, and the difference is almost entirely preparation.

The demand letter isn’t the beginning of the case. It’s the middle. The beginning was the ninety days before your customer filed, and for a lot of vendors reading this, that clock has already run. What remains is the work of assembling the record that those ninety days created.

If your company received payments from a customer that has filed Chapter 11, or you’re managing a portfolio of distressed accounts and want to understand your exposure before the letters arrive, our Bankruptcy & Financial Restructuring team defends preference actions nationwide and can help you build the file now, while it still can be built.