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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.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.


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)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.

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.

A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John Bouvier. Published 1856.
References in periodicals archive ?
To solve this problem, the fuzzy analytic hierarchy process (FAHP) used fuzzy preference relations to incorporate the ambiguities and uncertainties that usually exist in human judgment generally [20,21].
While a voting rule outputs a single candidate, an aggregation function outputs a collective preference relation or utility function.
To collect priorities of the DMs in AHP, different kinds of preference relations are used in the literature, but numerical preference relations [14-16] and linguistic preference relations (LPRs) [17,18] are the two basic preference relations that are often used in MCDM problems.
Based on the obtained group fuzzy preference relation on the attributes, the optimization models (18a)(18d) are set up to calculate the subjective weights, while satisfying the inequality constraints among partial attributes.
On the basis of the construction of the Pareto-optimal solutions, and taking into account the binary preference relations of local criteria using stochastic multi-agent optimization particle by multiswarm algorithms improved method for solving formulated multiobjective multiextremal nonlinear programming problem with constraints, to which the problem of multicriteria synthesis of robust controllers multimass electromechanical systems that can significantly reduce the time for solving the problem and satisfy different requirements that apply to the work multimass electromechanical systems in various modes.
Xia, "Multiplicative consistency of hesitant fuzzy preference relation and its application in group decision making," International Journal of Information Technology and Decision Making, vol.
A fuzzy preference relation R on a set X = {[x.sub.1], [x.sub.2], ..., [x.sub.m]} is a fuzzy set on the product set X x X, i.e., it is characterized by a membership function [u.sub.R]: X x X [right arrow] [0, 1].
Five chapters later, the discussion of the relationship between probability metrics and decision theoretic preference relations is revisited.
The fuzzy revealed preference relation R on X is defined by [for all]x,y [member of] X, R(x,y) = [max.sub.{S|x,y[member of]S)] C(S)(v).
Tavana, "Solving multi-period project selection problems with fuzzy goal programming based on TOPSIS and a fuzzy preference relation," Information Sciences, vol.
A fuzzy preference relation (FPR) P on a set of objectives, X, is a fuzzy set on the product set X x X, that is characterized by a membership function [[mu].sub.p]: X x X [right arrow] [0,1].
Yet their frameworks do not allow for any nonstandard preference relations. This paper shall defend a symmetry between values and preferences, namely that for every value relation there is a corresponding preference relation, and Vice versa.