The Bankruptcy Code, like its predecessor the Bankruptcy Act, permits the trustee to avoid certain preferential transfers made or suffered by the bankrupt just prior to bankruptcy. Generally, any transfer relating to an antecedent debt made to or for a creditor by an insolvent within ninety days before the filing of the bankruptcy petition is avoidable by the trustee. The trustee may sue the creditor to recover the preference. In addition, the preferred creditor will not be entitled to any dividend from the estate until the preference is repaid.
Michael J. Herbert,
The Trustee Versus the Trade Creditor: A Critique of Section 547(c)(1), (2) & (4) of the Bankruptcy Code,
U. Rich. L. Rev.
Available at: http://scholarship.richmond.edu/lawreview/vol17/iss4/2