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Demystifying bankruptcy: Start your prep 3+ months ahead

Planning is key.  Payment by an insolvent entity for old debt is known as a “preference,” and the creditor may have to disgorge in bankruptcy if it received a greater payout than it would in Chapter 7.  As the key to bankruptcy is equitable distribution, the creditor will be paid only its pro rata share.  To best avoid “preferences,” debtors should pay in an ordinary course pattern, COD, or provide new value.