| December 8, 2011

Bankruptcy Preferences: They Haven’t Gone Away

For generations, federal bankruptcy law has given trustees and debtors-in-possession (collectively, for simplicity, trustees) in Chapter 7 liquidation and Chapter 11 reorganization cases the power to “avoid,” or invalidate, certain pre-bankruptcy preferential transfers and to add the recovered proceeds to the bankruptcy estate. Since the trustee’s avoidance powers extend to transfers intended as security, not just absolute transfers, even secured claims are vulnerable to avoidance when the necessary preference elements can be established.

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