I had a client situation recently that reminded me of how important preparation and know-how are when dealing with preference actions.
The client had received a demand letter from a debtor in a Chapter 11 case (who has the powers of a trustee) informing him that he would be subject to a preference lawsuit unless he paid 90% of the claimed amount. Typically in this situation, a trustee is hoping the creditor will pay anywhere from 50% to 100% of the demand. Though if well-handled, frequently a creditor can expect to pay far less. (Note: A demand letter is the first step in a preference action. No action is actually required until a creditor receives a summons letter.)
After talking with the client and reviewing all of his financial documentation, it was clear to me that the client had a fairly strong defense against a potential preference lawsuit. (This is not always the case, and when it isn’t, I always give my clients a frank evaluation of their position.) Of course, it’s one thing for me to know that. The key, in addition to fully understanding the ins and outs of the client’s situation, was making sure that the trustee understood exactly how strong the client’s position might be.
This is where preparation is so important. I communicated the client’s position in such a way that the trustee had to think, “You know what? This is a fight we’ll likely lose and is not worth our time when we have other easier preference claims to pursue.”
In other words, we won the battle before any swords had been drawn or shots fired. And that’s not only the best way to win, it’s also the most cost-effective for my clients.
As a New York bankruptcy lawyer who has extensive experience working on both the defense side as well as the trustee side of New York preference actions, I understand the preference action landscape as well as anyone, and I can answer your questions and help you figure out the best and most cost-effective strategy for defending yourself.
EMAIL Bruce Weiner
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