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Overcast Business Law
Q. One of the customers of my company filed for bankruptcy and I received a letter from the customer’s bankruptcy attorney demanding that I return all payments I received from the customer during the 90 days prior to the bankruptcy filing. Can he be serious? The customer never complained about any of the services that we provided them and we earned the money. Why should I have to pay it back?
A. Sadly, the letter is not a joke. The short answer to your question is that you may have to return the payments you received in the 90 days prior to your customer’s bankruptcy. However, you may have defenses to your customer’s demand and you should not return any payments to your customer until you consult with a bankruptcy lawyer who can determine if any of those defenses apply in your case.
The payments you received are called “preferences." Under the Bankruptcy Code, a Debtor (the person or entity that files for bankruptcy), or the Trustee for the Debtor, if one is appointed, can seek to recover all payments made by the Debtor to creditors during the 90 days prior to the Debtor’s bankruptcy filing if those payments were made on account of a debt owed by the Debtor before the payment was made.
