Bankrupt Customer

What is the name of your state? Indiana

Hi:
I'm a small buisness owner. One of my corporate client recently went through a chapter 11 then 7 bankruptcy.

I just recieved a letter from their "agent on behalf" informing me that the payments they made to me 90 days prior to their chapter 11 filing were "avoidable transfers", and they want me to pay them back.....

Is this for real???

The letter didn't come registered but they have the correct payment dates and amounts. They reference Section 547(b) of the bankruptcy code.

Any advice?

[JETX]

Q1) "Is this for real???"
A1) Don't know, haven't seen the letter. But if all is in order, yes.

Q2) "They reference Section 547(b) of the bankruptcy code."
A2) The cited Section reads:
Sec. 547. - Preferences
b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property -
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made -
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if -
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title."

Q3) "Any advice?"
A3) Repay the applicable funds. If you don't, the court can order repayment. And if you still refuse, you can be found in contempt... not something to take lightly.

I agree, except that I wouldn't return the funds until the court ordered you to do so.

No sense in letting someone else earn interest on the money until you have to give it up.

[JETX]

Gottago recommends your not returning the funds until the court orders.... with the reasoning being that you get to keep the interest earned on the money in the interim.

Wrong. The small amount of money you earn in interest will more than be eroded away in both time AND money if you refuse to return the funds (assuming that the Trustee is correct in both amount and timing). If you refuse, the Trustee will simply request an Order from the court and you may have to make an appearance to explain your refusal. Then, if the court doesn't like your reasoning, you could be hit with sanctions. Gottago does NOT realize that the Bankruptcy Code is not like 'normal' court processes where there are issues of law to be determined. The bankruptcy court ONLY concerns themselves with the facts of the petitioner and the Trustee. You 'piss on them' and you can very quickly feel the sting of the court.

Indiana
I had a chance to do a little research on this over the weekend and noticed that subsection C of 547 says basically that the trustee can't avoid a transfer if it was made in the "..ordinary course of buisness affairs of the debtor and the transferee;.."

I get the impression that this section was intended to recoup fraudulent transfers.