Preferential Payments

Preferential payments refer to certain payments made by a debtor to specific creditors before declaring bankruptcy. These payments are considered "preferential" because they favor some creditors over others, potentially violating bankruptcy laws. The legal system aims to ensure fairness among all creditors, so if such payments are made within a specified period before bankruptcy, they can be challenged. This ensures that all creditors have an equal chance to recover debts owed to them, rather than allowing some to receive full payment while others receive nothing.