Preference Payments

Preference payments are transactions where a debtor makes a significant payment to one creditor shortly before filing for bankruptcy, effectively favoring that creditor over others. These payments are scrutinized because they might give an unfair advantage, reducing the debtor's estate available to all creditors. During bankruptcy proceedings, courts may review and potentially recover (or "claw back") these payments to ensure an equitable distribution among all creditors. Essentially, preference payments are instances where a debtor preferentially favors certain creditors, impacting fair treatment in the bankruptcy process.