• Ordinary-Course Preference Defense: 'And' to 'Or' Means Preference No More?
  • June 18, 2010
  • Law Firm: Wolfson Bolton PLLC - Troy Office
  • Being sued to recover a preference can drive home the financial impact of bankruptcy to a creditor client. In addition to the loss the creditor will likely sustain on the amounts owed by the debtor when the debtor filed for bankruptcy, the creditor may be forced to return any preferential payments it received before the bankruptcy. There are several defenses to a preference action, the most common of which is the “ordinary course of business” defense.1 Congress changed only one word of the elements of this defense—substituting an “and” for an “or”—in the Bankruptcy Abuse Prevention and Consumer Protection Act of 20052 (the “Reform Act”), its recent amendments to the Bankruptcy Code.3 That change, however, should significantly help the typical unsecured creditor defeat a preference claim.