Section 547
Definition:
Section 547 of the U.S. Bankruptcy Code governs “preferences,” which are certain payments or transfers made by a debtor to a creditor shortly before filing for bankruptcy that may unfairly favor one creditor over others. This section allows the bankruptcy trustee to recover (or “avoid”) such preferential transfers to ensure equal treatment among all creditors.
Section 547 Information
Under Section 547, a transfer may be considered a preferential payment if it was made (1) to or for the benefit of a creditor, (2) on account of an antecedent debt, (3) while the debtor was insolvent, (4) within 90 days before the bankruptcy filing (or one year if the creditor is an insider), and (5) if it allows the creditor to receive more than they would have in a Chapter 7 liquidation. However, there are defenses available to creditors—such as payments made in the ordinary course of business, contemporaneous exchanges for new value, or transfers that provide new value to the debtor.
Florida Legal Definition
In Florida, Section 547 applies through federal bankruptcy courts and works alongside state commercial and contract laws. While the determination of a preferential transfer is made under federal standards, Florida law helps define underlying property rights and business transactions. Trustees in Florida may use Section 547 to recover payments made to certain creditors within the preference period to promote equitable distribution among all creditors.
How It’s Used in Practice
Bankruptcy trustees and attorneys analyze the debtor’s financial records to identify any preferential payments made before filing for bankruptcy. If such payments are found, the trustee can file an adversary proceeding to recover them for the estate. Creditors, in turn, may raise defenses under Section 547(c) to show that the transfer was legitimate and not preferential. Understanding Section 547 is essential for both debtors and creditors to avoid and address potential preference claims.
Key Takeaways
- Section 547 allows trustees to avoid preferential transfers made before bankruptcy.
- It prevents debtors from favoring certain creditors over others before filing.
- Transfers within 90 days of filing (or one year for insiders) may be subject to recovery.
- Creditors can defend against preference claims if the payments were made in the ordinary course of business or for new value.
- Section 547 ensures fairness and equal treatment among creditors in bankruptcy proceedings.
Disclaimer: The information and opinions provided are for general educational, informational or entertainment purposes only and should not be construed as legal advice or a substitute for consultation with a qualified attorney. Any information that you read does not create an attorney–client relationship with Barnes Walker, Goethe, Perron, Shea & Johnson, PLLC, or any of its attorneys. Because laws, regulations, and court interpretations may change over time, the definitions and explanations provided here may not reflect the most current legal standards. The application of law varies depending on your particular facts and jurisdiction. For advice regarding your specific situation, please contact one of our Florida attorneys for personalized guidance.
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