Worried About the 90-Day Bankruptcy Preference Period?

A preference payment is a payment you made to a creditor within 90 days before filing bankruptcy that gave that creditor a bigger cut than they would’ve gotten in a typical Chapter 7 liquidation. The bankruptcy code treats these payments as unfair because they let you pick favorites right before the filing, so a trustee can ’avoid’ the transfer and pull the money back for equal distribution among all creditors.

In practice, this usually hits routine business payments made during financial distress. Say you paid a key supplier two weeks before filing to keep inventory moving while letting other trade debts sit unpaid. That supplier got paid at the expense of everyone else, exactly what the preference rule targets. The same logic applies to paying a credit card bill for a balance you’d already built up, or wiring a lump sum to a family member who lent you money. The trustee compares what that creditor actually received against what it would have gotten in a straight liquidation, and if the payment improved its position, the amount is fair game for recovery.

The 90-day clock is legally significant because it creates an automatic presumption that any payment made to a creditor during this *preference period* is recoverable in bankruptcy. A bankruptcy **trustee** can sue to reverse those transfers, whether the creditor knew about the debtor's financial trouble or not.

For creditors, this means money you've already received and spent can be clawed back months later - often when you least expect it. For debtors, it complicates paying normal bills right before filing. The most reliable protection is proving the payment happened in the ordinary course of business or was a contemporaneous exchange, which stops the trustee from unwinding the transaction.

The 90-day lookback period starts from the date the bankruptcy petition is filed, not the date a payment was made. You simply count 90 calendar days backward from the filing date to define the window where payments can be scrutinized.

However, the exact start date can shift depending on how the case begins:

• Voluntary filing: The standard rule applies. The 90-day period begins the day the debtor files the petition. If a company files on March 1, the lookback period starts on December 1 of the previous year.
• Involuntary filing: If creditors force a business into bankruptcy, the 90-day period typically runs from the date the involuntary petition was filed, putting earlier payments at risk than a debtor who voluntarily files later.
• Case conversion: If a case converts from a different chapter (like Chapter 11) to a Chapter 7 liquidation, the 90-day period is usually measured from the original filing date, not the conversion date, which can catch creditors who continued accepting payments mid-case.

A payment can typically be clawed back if it gave you a better deal than other creditors during the 90-day lookback period before the bankruptcy filing. The trustee's job is to make sure no single creditor got an unfair slice of the pie at the last minute, so they will look for ordinary payments that suddenly became preferential.

Common examples of payments most at risk:

• Late payments made outside your normal payment cycle
• Lump-sum payments that clear an old, overdue balance all at once
• Payments to insiders, like family members, company officers, or relatives, made within a full year of filing
• Payments on unsecured debt, like credit cards, trade debt, or personal loans
• Any payment the creditor had to sue or aggressively pressure you to make

Not every payment fits neatly into one box, and a trustee still has to prove the transfer was truly preferential. Ordinary, on-time payments made in the usual course of business between you and the creditor are much harder to claw back, which is why payment history and timing matter so much.

A payment made during the 90-day preference period is most vulnerable to a clawback lawsuit when it looks out of the ordinary compared to how you and the debtor usually did business. Trustees are trained to spot anomalies that suggest you got better treatment than other creditors. Here are the five biggest red flags:

• The debtor paid you late, then suddenly started paying on time or early as financial trouble deepened.
• You received a large lump-sum payment that cleared old invoices in one shot rather than through regular installments.
• The payment method changed from a standard check to an unusual form, like a cashier's check or wire transfer.
• You pressured the debtor with collection calls, demand letters, or legal threats right before the payment was made.
• The payment covered a very old debt well beyond your normal billing cycle, signaling the debtor was picking favorites.

Some transfers are typically protected from clawback in a 90-day preference period because they reflect normal, fair-value exchanges rather than a creditor getting a last-minute advantage. The key is whether the transfer was part of an ordinary, simultaneous swap of value.

Congress and bankruptcy courts built in specific safe harbors for commonplace transactions. These often include: contemporaneous exchanges, where the debtor paid cash and got goods or services at the same time, so the estate wasn't depleted; ordinary course payments, where the debtor paid on routine terms (like a monthly utility bill) rather than under unusual collection pressure; and new value transactions, where a creditor gave the debtor additional goods or credit after receiving a payment, effectively offsetting what was taken out of the estate.

These protections come with strings attached. If a creditor ramped up collection calls and the debtor started sending overnight checks after 60 days of silence, that likely falls outside the ordinary course and becomes a target for recovery. The exact boundaries depend heavily on the specific payment history and timing, so these categories are safer but never bulletproof.

Business payments face much stricter scrutiny during the 90-day lookback period because they often involve higher dollar amounts, credit terms, and potential insider relationships. Courts expect businesses to monitor their partners' financial health more closely than a consumer would, so a routine trade payment to a struggling vendor can be challenged as a preference. The 'ordinary course' defense is harder here, a payment must match both the historical pattern between those two businesses and industry standards. If you received a payment outside normal terms, like a rush wire after months of slow pay, a trustee may view it as a red flag and demand it be returned.

Personal payments, on the other hand, usually get more leeway unless the amounts are unusual or the recipient is a relative or insider. Most consumer transactions, like paying the electric bill or buying groceries, involve small sums spent shortly after the purchase, making them impractical to claw back. The ordinary-course test is simpler and often defaults to whether the transaction looked like a typical living expense. One key exception, however, is repaying a personal loan to a friend or family member during the 90-day period; those transfers to insiders can face the same aggressive recovery as business payments.

If a trustee contacts you during a bankruptcy case, it usually means they've spotted a payment you received in the 90-day lookback period and are investigating whether to demand its return. Their initial contact, often a letter or informal inquiry, is a serious signal, not something to ignore. Responding calmly and correctly from the start can preserve negotiation options and prevent a formal lawsuit.

Here's what to do in order.

1. Respond promptly but don't argue the merits on the first call. Acknowledge receipt of the letter or voicemail. Avoid defensively explaining why the payment was 'ordinary,' because off-the-cuff statements can accidentally hurt your defense later. Simply confirm you'll review the matter and set a general time frame for your reply.
2. Gather and preserve specific records immediately. Collect the invoices, payment confirmations, bank statements, email threads, and contracts tied to that specific transaction. The trustee's letter usually names the date and amount. You'll need to compare what happened against how you and the debtor usually did business before the lookback period.
3. Consult an experienced bankruptcy attorney before sending anything substantive. Preference law is filled with defenses (ordinary course of business, new value, contemporaneous exchange), but applying them requires a nuanced read. A lawyer can spot which defense is likely strongest and how to present it without making a damaging admission.
4. Explore a resolution or defend methodically. In many cases, a trustee will negotiate. You might settle for a percentage of the amount instead of paying in full and incurring litigation costs. If settlement isn't possible, your attorney can raise your defenses in writing and, if necessary, through formal court proceedings.

One practical caution: never simply ignore trustee correspondence. Missing a deadline or refusing to engage can quickly escalate an inquiry into a lawsuit where you lose the chance to settle early on reasonable terms.

You can reduce your preference risk most effectively by making payments as close to your normal routine as possible and documenting everything. Trustees look for payments that break the usual pattern, so the more a transaction looks like business as usual, the harder it is to claw back.

Timing matters, but strategy matters more. If you are considering bankruptcy, talk to an attorney before you start shifting payment schedules or holding checks. Sudden changes in behavior right before filing can actually draw more scrutiny, not less.

Here are four practical ways to lower your exposure:

• Stick to your ordinary course of dealing. Pay bills within the same timeframe and in the same manner you always have. If you typically pay a vendor at 30 days, do not suddenly start paying at 10 days or 60 days. A consistent history is your strongest defense.
• Document every transaction in real time. Keep clear records showing the invoice date, the payment date, the amount, and the reason. Contemporaneous notes carry far more weight than explanations you reconstruct months later, after a trustee comes asking.
• Use standard payment methods and channels. Pay the same way you always have (ACH, check, wire) through the same accounts. Switching to a different bank or using cash or cashier's checks for no clear business reason raises red flags.
• Get legal advice before making any deliberate changes. If you are thinking about delaying payments to certain creditors or paying others early, speak with a bankruptcy attorney first. A well-intentioned move can accidentally create evidence of preferential treatment.