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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 ?
The Royal School, Wolverhampton, had 7.9 first place preferences for each of offer - a total of 246 compared to 31 places - the highest ratio in England.
The school had 2.6 first preference applications for each of the 234 places offered - 615 in total.
Unless the teaching strategies match with student characteristics like their learning preferences so as to enhance academic achievement, youth will not be instrumental in revolutionizing the decaying national economy.
The school had three first preference applications for each of its 128 places - 390 in total.
Americans who are college graduates and those who have postgraduate education are essentially neutral in their preferences, with about the same percentages wanting a boy as wanting a girl.
Just 24 per cent of those who put it as a first preference secured a place in 2017.
Among 123 subjects with gender preference, the preference for male child was seen in 75 (60.98%), while 48 (39.02%) had a preference for female child.
At Lawrence Sheriff School in Rugby there were a total of 13 preferences for each place, and 4.6 first preferences per place, with just 44% of those who put it as a first choice offered a place.
Of the 19 mate preferences that researchers considered, five varied significantly based on gender: good financial prospects, physical attractiveness, chastity, ambition, and age.
Then, should an organization be willing to take on the integration effort, there's the challenge of figuring out how to effectively incorporate customers' preferences into all of the workflows.
Consider the dilemma: On the one hand, society's preferences cannot be totally independent of the preferences of the individuals who compose it.
For example, in the case described three paragraphs above, we can infer that Phyllis, Gina, and anyone else with the same preferences as them is willing to pay [increment of y] dollars for an increase in the z attribute by amount [increment of z].