Preference Recovery and MCA Payments Made Before Bankruptcy

A payment the business owed can still return to the estate. Preference law examines the effect of a transfer inside the creditor distribution system, and a recent MCA debit receives no immunity from that examination when the balance was genuine and the intent was honest. The trustee asks how the payment altered the collective result; the answer turns on statute and records.

The Five Conditions the Trustee Must Prove

Section 547(b) of the Bankruptcy Code permits the trustee to avoid a transfer to or for the benefit of a creditor where five conditions coincide, and each condition must be established on the facts of the transfer rather than assumed from the calendar. Before the payment moved, the debt must have existed, and at the moment of transfer the debtor must have been insolvent. The statute then asks when the payment moved and whether the creditor emerged better off than the Code distribution would have left it.

For an MCA arrangement, the debit was, if the agreement is read with care, the collection of an old obligation rather than the purchase of new receipts, and that characterization decides whether the transfer answers for an antecedent debt. A provider label of purchase does not settle the question, and neither does the ledger description the business gave each withdrawal.

Within the ninety days before the petition, the ordinary window opens, and where the creditor held insider status the window extends to one year before filing. The steps the owner takes, or does not take, concerning guaranteed paper inside that longer period deserve counsel review and analysis before any filing date is chosen. Counsel should map the history against both windows while timing remains open. The calendar starts the inquiry without finishing it.

Ordinary Course and Other Statutory Defenses

The statute protects transfers made in the ordinary course of business or financial affairs of debtor and transferee, or made according to ordinary business terms, and a recurring weekday debit draws its defense from that provision rather than from its own regularity. Regularity supplies evidence for the comparison without resolving it. The funder drew collection from the account each business day in order to shorten its exposure as sales declined.

The business should preserve the statements that precede the review period alongside the challenged transfers, because a shift in amount, in collection method, or in the pressure applied before each debit can alter the comparison, and the file should contain the agreement that ran to fourteen pages (a point the bank statement obscures, since the processor name appears where the creditor name should stand).

Fresh funding that arrived after a challenged payment can support a subsequent new value defense where the value remains unpaid, though an obligation substituted for an old obligation does not qualify. A contemporaneous exchange for new value carries its own defense where the exchange was in fact substantially so.

The trustee bears the burden of proving the elements while the party asserting a defense bears the burden of establishing it, and the statute conditions trustee action on reasonable diligence in the circumstances with attention to known or reasonably knowable defenses. Trustees do not pursue every recent payment. They pursue the payments the records make easy to prove. Whether courts in this district will treat daily ACH debits as ordinary course paper is a question worth carrying into the consultation.

A single small debit should not be dismissed as beneath notice without analysis of the aggregation rules for a series. Each transfer belongs in the file with its date and amount preserved. Counsel can review the series, identify the aggregation exposure, and construct a reply that addresses the demand and the defenses the records support.

Insolvency, Timing and the Distribution Comparison

The Code presumes the debtor insolvent through the ninety days before filing, though the presumption operates inside the legal framework rather than as a substitute for financial records. Balance sheets and testimony about liabilities may still shape the claim and the response, and counsel will review and analyze them (the matters we have seen are too few to support a general rule). The comparison is extremely fact bound and extremely sensitive to collateral values.

A fully secured creditor presents a different comparison from one holding no collateral worth the claim, and the actual interests require examination. The payment was lawful. It remains recoverable. That is the distinction the statute preserves for the collective proceeding.

A timely payment can still prefer one creditor over the rest.

Where a payment passed through an intermediary, the transfer should be traced to the party whose claim diminished rather than the processor named on the statement. The corresponding ledger entry belongs beside the bank line. Other debts and liens asserted against the estate can alter the comparison, as the Chapter 7 bankruptcy basics published by the federal courts describe administration of recoveries for creditors as a group.

The Adjusted Floor in Business Cases

In a case where the debts are not primarily consumer obligations, the statute shelters transfers beneath an adjusted floor the Judicial Conference placed at $8,575 effective April 1, 2025, subject to the aggregation rules counsel applies to a series. Many individual MCA debits sit below that figure. The series as a whole may not.

Rarely does a floor decide a case, though this one removes the smallest transfers from dispute. The floor excuses qualifying transfers without reaching the defenses, which leaves the larger payments and the pattern they form for the analysis the earlier sections describe.

Records and Settlement Timing Before Filing

As a hypothetical, consider a distributor that paid daily debits for months and then filed. The trustee asks for those months back. The distributor answers with records or it answers with money.

Delancey Street is a debt settlement company that can discuss negotiation of business obligations before any filing decision, while a bankruptcy attorney provides the legal analysis a settlement company does not supply. Simply gather the agreements, the statements, and whatever forecast the business prepared for its own use before either conversation. Resist the urge to favor one creditor with a lump payment before filing, since any statement about insolvency to a collector, even casually, can complicate the later case.

The company offers a free confidential initial review, and the review is most useful when the payment history arrives with it. Most owners learn this doctrine after the payments have been made. That timing is ordinary, and the balance sat through the slow months accumulating cost the way a sill accumulates dust, unnoticed until the light changed. Preference law measures a payment by its effect on creditors the owner never met, which is why the weeks before filing deserve the same attention as the filing itself.