A bankruptcy preference demand can feel deceptively simple: a trustee, debtor-in-possession, or plan administrator says your company got paid during the preference period and asks for the money back. But the real analysis usually starts after that first demand arrives. Many preference claims turn on defenses under 11 U.S.C. § 547(c), especially ordinary course of business, subsequent new value, and contemporaneous exchange for new value. Those defenses can materially change exposure, settlement posture, and the quality of the response. If you want a broader refresher on how preference claims work in the first place, this overview of clawback risk, the 90-day window, insider payments, and defense strategy provides the larger framework.
In this post, you’ll learn how to evaluate the most common preference defenses, what records often matter most, where the gray areas usually appear, and how creditors and their counsel often approach the analysis in real cases.
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A demand letter often lists transfers, total dollars, and a short explanation of why the sender views those payments as avoidable. That is only part of the picture. Section 547 itself builds in multiple statutory defenses, and Congress has also directed trustees to account for “known or reasonably knowable affirmative defenses” as part of their due diligence under the statute. The same section also defines the basic 90-day lookback for most creditors, the one-year lookback for insiders, and the elements of a preference claim. Cornell’s Legal Information Institute reproduces the statutory text, and the U.S. Department of Justice’s Civil Resource Manual discusses the policy behind preference law and several of the common defenses.
That framework matters because two claims with the same payment total can have very different value once defenses are mapped invoice by invoice. In general terms, preference defense work is often less about broad labels and more about timing, course of dealing, credit terms, shipment history, payment application, and what happened after each transfer.
A defense is worth evaluating whenever the payment history reflects something other than an unusual collection event. That can include:
Not every fact pattern supports a defense. For example, a sudden payment plan, threats to cut off supply, legal pressure, bounced checks, or dramatic aging deterioration can complicate an ordinary-course argument. Still, those issues do not always end the analysis; they often narrow it.
The ordinary course defense appears in 11 U.S.C. § 547(c)(2). In simplified terms, the defense can protect a transfer if the debt was incurred in the ordinary course of business or financial affairs of the debtor and creditor, and the transfer was made either in the ordinary course between those parties or according to ordinary business terms.
That “either/or” structure matters. Before the 2005 amendments, the statute was more demanding. The current version allows a defendant to prove the subjective test based on the parties’ own history, or the objective test based on ordinary business terms in the relevant industry. Commentary from the Department of Justice and recent case discussions such as Jones Day’s write-up of an Ohio bankruptcy decision both emphasize that the defense is designed to leave ordinary financial relations undisturbed.