If you received a bankruptcy demand letter asking for money back, the language can feel upside down. You sold goods, provided services, or got repaid on a real debt — and now a trustee or debtor representative is saying that payment may be recoverable as a preference.
That concept is real, but it is also narrower and more technical than many first notices make it sound. In general terms, a preference claim is an effort to recover certain payments or transfers made before a bankruptcy filing so those funds can be redistributed more evenly among creditors. The core federal statute is 11 U.S.C. § 547, and the U.S. Courts describe preference avoidance as part of the bankruptcy system’s effort to prevent unfair prepetition payments to one creditor at the expense of others (U.S. Courts).
This topic sits inside the larger world of bankruptcy and restructuring options for businesses and individuals, but preferences have their own timing rules, proof issues, and defenses. In this post you’ll learn what a preference is, why the 90-day lookback matters, how insider payments are treated differently, what common defenses often look like, and how a practical defense strategy may develop after a demand arrives.
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A bankruptcy preference is generally a transfer of the debtor’s property to or for the benefit of a creditor, on account of an existing debt, made shortly before bankruptcy, while the debtor was insolvent, that let the creditor receive more than it likely would have received in a normal bankruptcy distribution. Those elements come from Section 547 of the Bankruptcy Code.
That sounds abstract, so a simpler version helps: if a struggling company paid one vendor, lender, landlord, or insider right before filing bankruptcy, the estate may later argue that payment gave that recipient an advantage over similarly situated creditors. The law sometimes allows the trustee or debtor in possession to “claw back” that payment and redistribute the money through the bankruptcy process. The U.S. Courts describe these as “avoiding powers” that can undo certain prepetition transfers, including some made within 90 days before the petition date and, in some insider situations, up to one year before filing (U.S. Courts).
If you want a broader plain-English walkthrough of the claim itself, this guide on why bankruptcy clawback claims happen and how they work can help frame the issue before you get into defenses.
The 90-day period before the bankruptcy filing is the standard preference lookback period for non-insider creditors under 11 U.S.C. § 547(b)(4)(A). That is why demand letters often focus heavily on invoices, checks, ACH payments, wires, and payment applications in the three months leading up to the petition date.
The date that matters is usually the bankruptcy filing date, then the parties work backward 90 days. That date math can be outcome-determinative. A payment made on day 91 may be outside the ordinary preference window for a non-insider. A payment made on day 89 may be inside it.
But timing is only the beginning. Being within 90 days does not automatically make a transfer recoverable. The estate still generally has to establish the statutory elements, and the recipient may still have defenses under Section 547(c). The Department of Justice’s archived Civil Resource Manual summarizes several of those defenses, including contemporaneous exchange, ordinary course, and new value (DOJ).
That nuance matters because many creditors see the 90-day allegation and assume liability is already fixed. Often, the real fight is not about whether a payment occurred during the lookback period. It is about what the payment was for, how the parties historically operated, what happened before and after the transfer, and whether the defendant can reduce or defeat exposure through statutory defenses.
A transfer can mean more than a paper check. Under the Bankruptcy Code, the concept is broad. Depending on the facts, preference litigation may involve: