Preference disputes There are not as many preference claims asserted by panel trustees as one might imagine. Most cases are filed by individual debtors. The vast majority do not have the funds to make substantial preference payments to creditors in advance of filing. Preference cases arise most often in corporate bankruptcies. There are not that many corporate Chapter 7 filings in the course of a year.
Most attorneys promote informal liquidations of bankrupt companies.
They contact secured lenders, work out a plan to liquidate the assets by agreement, apply the proceeds to secured claims and tax debts, and distribute any excess pro rata to unsecured creditors. Most often, the secured claimants are under-collateralized, and the corporate shell is not even formally dissolved after liquidation. Unsecured creditors trying to collect are advised of the facts, and elect to take their write-off rather than try to seek legal remedies. Corporations usually end up in Chapter 7 after the liquidations have occurred, and have minimal or no assets to be administered. Thus, the preference case usually arises in involuntary Chapter 7 cases that caught the debtor by surprise, or in converted Chapter 11 cases.