Preferential Transfer

Voidable Preference
Meant to prevent the bankrupt debtor favoring certain creditors over others

Trustee has right to recover preferential transfers Is a transfer of the debtor's property:
 * i.e. invalidate certain transfers to favored creditors before the date of the bankruptcy
 * 1) To or for the benefit of a creditor?
 * 2) For or on account of antecedent debt the debtor owed to the creditor before the transfer was made?
 * 3) Made while the debtor was insolvent?
 * 4) Made on or within ninety days before the date of filing of the petition, OR
 * 5) If the creditor was an insider, within one year of the date of filing the petition
 * 6) That enables the creditor to receive more than he would have received under Chapter 7

Insider
Where preferential transfer is given to an insider, 90 day period gets extended to one year
 * Relative or general partner of debtor, or
 * A partnership in which debtor is a general partner, or
 * A corporation in which debtor is a director, officer, or person in control

Voidable Title
Transfer is any direct or indirect disposal of property or interest including "retention of title" as in a security interest

Where one grants a security interest to pay for goods and the security interest is perfected before filing for bankruptcy, trustee may avoid the perfected security interest and secured creditor is reduced to unsecured creditor

Exchanges for new value
Example: Within 90 days before petition is filed, debtor pays cash for computers to sell at his computer store. Here, just trading money for computers. Debtor's assets have not been reduced and the seller of computers has not gained an unfair advantage over other creditors

Payments in the ordinary course
Trustee cannot avoid a transfer in payment of a debt incurred in the ordinary course of business

Example: Debtor can pay electric bills. Debtor can also make payments of long or short term debt. Purpose is to leave undisturbed normal financial relations. Code discourages "unusual action" and payments in the ordinary course are not unusual

Alimony and Support
Trustee cannot avoid bona fide transfers for alimony and child support not previously paid (i.e. debtor owed a lot of money in child support)