(Part one in a two-part series on avoidance litigation in bankruptcy cases)

While initial consumer and commercial bankruptcy filings have, in recent years, ebbed in the wake of the historic highs of the Great Recession, the tail of the bankruptcy boom continues to vex the business community from an unexpected source — avoidance litigation against the debtor’s service and product vendors. The Bankruptcy Code permits a trustee or debtor in possession to avoid and recover certain payments, known as preferences, made by the debtor to its creditors during the 90-day period preceding the filing of its bankruptcy petition. The legislative policy objectives of preference avoidance rest on a dubious proposition: that all creditors should share equally in the debtor’s financial failure and that those creditors who successfully pressured the debtor for payment immediately before the bankruptcy should not gain a greater share of the estate than creditors who did not prey on a distressed debtor. Continue Reading