Free Consultation
The office is open as per the NYS Covid-19 guidelines. We are now doing both in-person and telephone consultations. Please call the office at 718-855-6840 to schedule a time to speak with one of our experienced bankruptcy attorneys.

Preference Actions: What is the “contemporaneous exchange” defense?

goods-exchangeIn a previous post (“Defenses to Preference Actions – Part I“), I explained that there are three common defenses to preference actions (also often called “preference lawsuits”) that you can use if you’ve received a demand letter from a bankruptcy trustee, from counsel to a Debtor-In-Possession or counsel to a creditors committee.

In a subsequent post I explained the Ordinary Course of Business” Defense.  Next I’ll explain the…

“Contemporaneous Exchange” Defense

The “Contemporaneous Exchange” Defense (also sometimes referred as the “Contemporaneous Exchange for New Value” Defense, but not to be confused with the “New Value” Defense), simply means that in the debtor paid money to you in exchange for something of value.

For example, if you delivered goods to the debtor, and right then and there the debtor paid you for those goods, then that would be a contemporaneous exchange for new value.  If a trustee pursued a preference action against you for that transaction, then you would likely be successful employing the “Contemporaneous Exchange Defense.”

Of course, the devil is in the details and the facts of a particular situation are the key to a successful or unsuccessful defense.

Timing, for example, is an important element.  If you deliver goods or perform a service for the debtor without receiving payment.  Then a month later you get the debtor to pay what they owe you, you have a much weaker “contemporaneous exchange” defense.  Why?  Because the exchange was not contemporaneous.

Getting into the nitty gritty a bit, there was a big court decision in 2007 that revolved around the issue of credit transactions.  (Hechinger Investment Company of Delaware, Inc. v. Universal Forest Products, Inc., Nos. 06-2166, 06-2229, 2007 U.S. App. LEXIS 13155 (3rd Cir. June 7, 2007))  And the court decided that even in the instance of a credit transaction–in other words, where there’s a delay between the transaction for goods and the actual payment for those goods–it can still be valid to invoke the “contemporaneous exchange” defense.

The main takeaway for any creditor involved in transactions such as these is to be aware that trustees can pursue preference actions against you, even for seemingly valid and legitimate transactions.  However, you also have some good defenses at your disposal.

The key to defending yourself is to have an experienced bankruptcy lawyer, particularly one who knows the ins and outs of preference actions.

Our experience both representing trustees and representing creditors against trustees gives us unique perspective on how to help our clients deal with preference actions.

If you’re facing a preference action in New York and need a skilled and experienced lawyer to help you navigate, please contact me for a free initial consultation.

Go to bankruptcy attorney Brooklyn NY to learn more about Rosenberg Musso & Weiner LLP and/or to set up a free consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

Recent Posts

Beware Grace Periods, Debtors

Too often, debtors see grace periods offered by lenders as free benefits. “Grace” makes it sound so innocent. However, debtors who routinely rely on grace periods when making payments will find themselves facing financial difficulties that might lead to bankruptcy. The reason is that although creditors offer grace periods to debtors, they also use them

Read More »

Bankruptcy May Not Rescue You From Vicious Personal Disputes

Bankruptcy is a technical process that assumes everyone working within it is mostly rational. To the extent that it expects parties to deviate from irrational behavior, the Bankruptcy Code and its accompanying rules include incentives to keep parties in line. Creditors are usually large and impersonal, and they rarely care if their debtors file bankruptcy.

Read More »

Non-Lawyers’ Explanations of Bankruptcy May Be Wrong

Do you have financial problems? Do you tend to ask your friends for advice? Is one of your friends an experienced New York bankruptcy lawyer who will explain the process for you? Are your friends otherwise knowledgeable people? The answer to these questions may be, “Yes but you don’t know it.” Although many bankruptcy lawyers

Read More »

6 Steps to Take Before Filing Bankruptcy

Leaving your case to an experienced New York bankruptcy lawyer is not the only step on the to-do list before filing bankruptcy. There are many things debtors should do (and not do) before they file, and the more organized and mindful debtors are, the easier the process will be and the more effective the result.

Read More »

Social Security Number Not Necessary for Bankruptcy

A question that’s commonly asked about New York bankruptcy is whether a debtor needs a Social Security number to file. Debtors ask because they sometimes run across the bankruptcy form title, “Your Statement About Your Social Security Numbers” (B 121), which asks debtors to list their current and prior Social Security numbers. The new bankruptcy

Read More »

How Can a Debtor (or Creditor) Get a New Trustee?

The trustee in a New York bankruptcy case is usually not the debtor’s ally. His or her purpose is mainly to administer the bankruptcy estate or ensure the debtor’s repayment plan goes according to plan. Trustees pursue preference payments, fraudulent conveyances, and other malfeasance committed by debtors. They frequently initiate adversary proceedings against debtors. In

Read More »
Scroll to Top