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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.
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arena will be given as the prime reason for preferential agreements and,
She was first elected MEP in 2004 and has been in the post since then.Miroslav iz class="ul Number of preferential votes: 51,362 Member of Smer.
According to the company, shareholders in the company have preferential right to subscribe for shares whereupon one existing share in the company entitles to one subscription right and five subscription rights entitle to subscribe for two new shares.
The Judges said that De La Rue was the only one of the four bidders that could qualify for the preferential margin as envisaged under procurement law "by any stretch of imagination".That qualification was met upon confirmation by the procuring entity that sub-contracting was allowed and further upon application for the preferential margin under Procurement Act based on its local affiliates.
(2000) and Alaoui and Goetz (2008) developed a new method of investigating preferential flow using dye tracing.
"The mechanism of organizing the preferential vote takes place through one way and that is directly through the electoral machinery in each area, city and town," the statement added.
APOTOA earlier announced to go on strike for an indefinite period following failed negotiations with Pakistan State Oil (PSO) over the perceived preferential treatment of NLC tankers.
"element-invisibleBusiness ( Article MRec ), pagematch: 1, sectionmatch: 1The JFC and the government, through the Department of Finance and the Bureau of Internal Revenue, have different interpretations to the ROHQ provisions related to the Tax Reform for Acceleration and Inclusion (TRAIN) law.Finance Secretary Carlos Dominguez said last week the 15 percent special tax rate on the gross income of employees of ROHQs is no longer applicable after President Duterte vetoed the provision granting the preferential rate under the TRAIN.
Emirates NBD has announced that it will offer customers preferential lending and pricing based on the Al Etihad Credit Bureau consumer credit score.
When a company is declared bankrupt, the courts will order that its assets are liquidated and its debts are paid off in accordance with the order of preferential debts as set out in Article 189 of the Bankruptcy Law.
ISLAMABAD -- Under Preferential Trade Agreement, Indonesia has agreed to give concession on major imports from Pakistan including rice, textile, ethanol, Kinnow and mangoes.
And now, for the first time, we know which neighborhoods are most at risk of seeing rents soar: Preferential rents are often concentrated in the poorest areas of the city.