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 courts are divided over whether the Section 547(c) (4) new value defense includes paid new value as they have interpreted the meaning of Section 547(c)(4)(B)'s requirement that the new value asserted as a preference defense cannot be paid by an otherwise unavoidable transfer to or for the benefit of the creditor in conflicting ways.
Sebi has recently allowed listing of non-convertible redeemable preference shares, that is, those that are not convertible into equity shares and are redeemed at maturity.
Preference languages are of particular importance in this domain as preferences can be expressed on goals, on actions, and on temporal formulas.
Overall, despite these slight differences and similarities, the preferred learning environment was largely congruent with the actual learning environment, the largest difference being on the scale of Student Interaction and Collaboration where the actual learning environment mean exceeded student preferences by only 0.
An equal preference scheme is more equitable than the present system; it gives a greater real satisfaction rate; and, in Newcastle, it has the added advantage of strengthening the neighbourhood school.
THE FORMAL CONCEPT OF PREFERENCE AND ITS BASIC INTERPRETATIONS
Saari has calculated that in three-candidate elections, depending on the voting system, more than two-thirds of all possible configurations of voters' preferences will yield different outcomes.
The Homework Motivation and Preference Questionnaire (HMPQ; Hong & Milgram, 1998, 2001) was developed to assess an individual's profile of homework motivation and learning preference (i.
Prescreening of the universe of potentially relevant career alternatives, based on the individual's preferences, to locate a small and thus manageable set of promising alternatives that deserve further exploration
Alternatives higher in preference in a string of alternatives like "xzy", are indicated in left to right order: preference s: xzy from Table 1, for example, means that x is preferred to z, z is preferred to y, and x is preferred to y.
There is no means test, there is no citizenship test, there is no residency test; it is a race preference that is given solely based on checking the box.