preference

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Preference

The act of an insolvent debtor who pays one or more creditors the full amount of their claims or a larger amount than they would be entitled to receive on a pro rata distribution.

For example, a debtor owes three creditors $5,000 each. All three are equally entitled to payment, but the debtor has only $12,000 in assets. Instead of paying each creditor $4,000, the debtor pays two creditors in full and pays the third creditor the remaining $2,000.

The Common Law does not condemn a preference. Some state statutes prescribe that certain transfers are void—of no legal force or binding effect—because of their preferential character. If a state antipreference provision protects any actual creditor of the debtor, the trustee in Bankruptcy can take advantage of it.

Bankruptcy law does condemn certain preferences. The bankruptcy trustee can void any transfer of property of the debtor if the trustee can establish the following:

  1. The transfer was "to or for the benefit of a creditor."
  2. The transfer was made for or on account of an "antecedent debt"—that is, a debt owed prior to the time of the transfer.
  3. The debtor was insolvent at the time of the transfer.
  4. The transfer was made within 90 days before the date of the filing of the bankruptcy petition or was made between 90 days and one year before the date of the filing of the petition to an insider who had reasonable cause to believe that the debtor was insolvent at the time of the transfer.
  5. The transfer has the effect of increasing the amount that the transferee would receive in a liquidation proceeding under chapter 7 of the bankruptcy law (11 U.S.C.A. § 701 et seq.). 11 U.S.C.A. § 547.

Other statutory provisions, however, create exceptions; if a transfer comes within an exception, the bankruptcy trustee cannot invalidate the transfer even though the aforementioned five elements exist.

preference

n. in bankruptcy, the payment of a debt to one creditor rather than dividing the assets equally among all those to whom he/she/it owes money, often by making a payment to a favored creditor just before filing a petition to be declared bankrupt. Such a preference is prohibited by law, and the favored creditor must pay the money to the bankruptcy trustee. However, the bankruptcy court may give secured creditors (with a judgment, lien, deed of trust, mortgage or collateralized loan) a legal preference over "general" creditors in distributing available funds or assets. (See: bankruptcy)

preference

noun bias, discretion, election, fancy, favorite, inclination, leaning, liking, partiality, preconceived liking, predilection, prejudice, proclivity, proneness, propensity, selection
Associated concepts: preferred risk

preference

(Priority), noun advancement, advantage, benefit, favored treatment, front position, praepositio, precedence, preeminence, preferment, preferred standing, seniority
Associated concepts: calendar preference, fraudulent conneyances, fraudulent preference, preferred stock, unlawful preference, voidable preference
Foreign phrases: Qui prior est tempore potior est jure.He who is first in time is first in right. Prior tempore potior jure. First in time, superior in right.
See also: advantage, bias, choice, conatus, decision, desire, discrimination, disposition, election, favor, favoritism, inclination, inequity, option, partiality, patronage, penchant, point of view, poll, position, precedence, preconception, predilection, predisposition, prejudice, prerogative, primary, priority, propensity, referendum, selection, volition, vote, will

PREFERENCE. The paying or securing to one or more of his creditors, by an insolvent debtor, the whole or a part of their claim, to the exclusion of the rest. By preference is also meant the right which a creditor has acquired over others to be paid first out of the assets of his debtor, as, when a creditor has obtained a judgment against his debtor which binds the latter's land, he has a preference.
     2. Voluntary preferences are forbidden by the insolvent laws of some of the states, and are void, when made in a general assignment for the benefit of creditors. Vide Insolvent; Priority.

References in periodicals archive ?
The endowment effect leads to intransitivity and a violation of the assumptions of preference theory only under some descriptions of the domain over which the agent has preferences.
Brams objects that it forces voters to rank all the candidates, even when there are some about whom they have no strong opinion, potentially leading to outcomes that don't really reflect voter preferences.
The activity provides students with the opportunity to reflect on their own motivations and preferences about homework.
The counselor is expected to encourage the client to find and report his or her optimal preferences yet also to consider compromising on within-aspect levels.
Another preference defense is the OCB defense contained in Section 547(c)(2) of the Bankruptcy Code.
For example, combinatorial auctions (Sandholm 2007) deal with preferences of the auctioneers, which are represented in the form of bids.
The purpose of this study was to compare the psychosocial learning environments for three graduate social work courses (face-to-face, hybrid, and online) and to measure student preferences and perceptions using a standardized web-based scale.
A preference profile is simply a list indicating the preferences held by each and every person.
Reason: How large were the preferences at the University of California?
The decision applies only to people working in the public sector, and legal experts said it would have no impact on the preference programs run by private companies.
The fact that the universe is deterministic or strictly dictated by cause and effect does not negate the fact that humans cut their way through the fuzzy, chaotic world to make their power and preferences known, both to themselves and to others.
04) on the Newcastle Schools' Admissions Forum's recommendation that Newcastle Council change from a so-called first preference first system for admission to schools to an equal preference system.