Will Bankruptcy Preference Lawsuits Decline due to Statutory Changes?

By Lisa P. Sumner (Nexsen Pruet)

Two recent amendments to the U.S. Bankruptcy Code impose new hurdles for debtors and trustees to clear before filing an action against a creditor to recover the value of preferential transfers that the debtor made to the creditor prior to filing a bankruptcy petition. One amendment requires debtors and trustees to conduct a due diligence review of the circumstances surrounding a particular transfer and probable affirmative defenses before filing suit. The other amendment increases the amount that debtors and trustees must seek to recover in a preference action if they want to file the action in the court where the bankruptcy case is pending rather than in the court where the creditor is located. These creditor-friendly amendments will take effect in early 2020, and may discourage debtors and trustees from filing some preference actions.

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