How to Negotiate Preference Claims With a Bankruptcy Trustee
When a company files for bankruptcy, a court-appointed trustee oversees the bankruptcy proceeding. The trustee files preference claims against any creditors paid by the debtor in the 90 days before it declared bankruptcy. The trustee demands that those creditors return the payments they received to the trustee, who puts them in an asset pool to be divided among all the creditors. A savvy creditor negotiates with the trustee to keep as much of the cash as it can.
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Instructions
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Respond to the trustee's claim letter promptly. A bankruptcy trustee often makes her first demand in the form of a letter to the company. If the company does not respond, the trustee may file a preferential claim lawsuit against you and try to make you pay her court costs and attorney fees.
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Ask the trustee to provide you with proof of the claim. For example, request copies of canceled checks that the bankrupt debtor sent to your company. Often the debtor has not kept good records, and the trustee's claim is based on sketchy documents and guesswork. Make the trustee prove that she has a valid claim against you.
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Review the debtor's payment history. One defense to a preference claim is that the debtor routinely made payments that were 60 or 90 days late, or even later. If the debtor paid late in the ordinary course of doing business with you, you may be able to persuade the trustee to reduce the preference claim by a significant amount.
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Review the debtor's order history. If you shipped goods or provided services to the debtor during the 90-day preference period and the debtor paid you for those goods, the law allows you to keep those payments. This legal loophole, known as the "new value" defense, rewards creditors who try to work with their customers when they fall behind in their payments. .
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Review the debtor's product return history. If the debtor returned goods to you and you refunded money, the trustee should exclude the amount you refunded from the claim.
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Calculate the amount of money the trustee should deduct from the preference claim. Write to the trustee and explain that you have valid defenses to the claim, but you are willing to pay something to settle the claim and avoid litigation. Propose an amount, such as 50 cents on the dollar, that gives you some room for further negotiations.When the trustee makes a counteroffer, counter his offer with the amount you are willing to pay.
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Tips & Warnings
Seek legal advice if you don't understand the defenses to a preferential transfer claim or if the amount of the preference claim is materially significant to your company.
Consider filing a claim in the bankruptcy proceeding for any money you repay to the trustee. You may not receive anything in return, but you won't know unless you try.
