COLUMN LEGALBusiness, Bankruptcy, Bad Debt – and You You forced your customer to pay an invoice and they ? led for bankruptcy protection. Can you keep the funds?By Larry DeMarcay Everyone knows that doing business N S FOT O ASTwith payment terms providing for pay- Just because you receive a letter from the trustee does ment in the future poses a risk. Our cli- not mean that you necessarily have to return the money. ents often contact us asking us to write There are several defenses that can be asserted to the re-letters and ? le suits against customers quest for repayment. The most common defense is that who have either refused to pay or are the payment was made in the ordinary course of business. unable to make payments on past due The ‘ordinary course of business’ defense applies in sce-invoices. Unfortunately, on many occa- narios where the debt was incurred in the ordinary course sions, you are not the only vendor that of business between the parties and was paid according to is hounding them for payment on a past due account. the usual pattern or pursuant to customary terms for that On the bright side, the retention of a lawyer and the ag- industry. For example, if you have a history of dealing gressive pursuit of the debt will often improve your chances with this particular customer where you invoice the cus-of receiving payment. Once the legal pressure causes the cus- tomer immediately after the work was completed, and the tomer to pay, there is usually a sense of relief knowing that customer always paid the invoice within thirty days of the you received payment when many other vendors did not. issuance of the invoice, you can argue that the payment However, if the customer is truly in a ? nancial crisis and was made in the ordinary course of business and ask that intends to seek bankruptcy protection from its creditors, the request for reimbursement be rescinded.this aggressively pursued payment may not stand. Speci? - This defense protects creditors who are paid in a cus-cally, if the customer ? les for bankruptcy protection and tomary fashion. The overriding role of the preferential a payment was made within ninety days of the ? ling, the payment refund system is to keep creditors from moving bankruptcy trustee may contact you and request reim- up several rungs on the payment ladder by receiving pay-bursement for that payment. ments before other creditors that may receive their pay-This request for reimbursement for the payment is ments in the normal course of the bankruptcy proceeding.called a “preferential payment.” The United States Code, The second defense to the request for repayment applies Title 11, Section 547, de? nes a preferential payment as: if the payment was made as a contemporaneous exchange for new value. The Bankruptcy Code states that prefer-• The transfer of an interest of the debtor’s property; ential payments must relate to an antecedent debt. Thus, • To or for the bene