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Wednesday, April 14, 2021

Preference Law Changes under Subsection 547(j) of the Bankruptcy Code



A Bankruptcy Trustee may not recover payments made to a landlord concerning commercial rent arrears or to a supplier, on or after March 13, 2020, resulting from workouts before the bankruptcy filing,  under new Section 547(j) of the Bankruptcy Code.  

These changes were made pursuant to the Consolidated Appropriations Act of 2021. 

Congress made these changes to the bankruptcy code in an effort to encourage commercial landlords and suppliers to engage in workouts with tenants and customers due to the pandemic, by mandating that these payments would not be deemed preferential, if they were made after March 13, 2020. 

The new law will remain in effect for two years, ending on December 27, 2022. 

These changes to the law will prevent Chapter 7 bankruptcy trustees from commencing preference actions against commercial tenants or suppliers that meet the above requirements of the law.

My Law Firm has been involved in many workouts where our clients have raised the issue of whether accommodations given to debtor(s) can be recovered by bankruptcy trustees if those debtors later file for Chapter 7 bankruptcy. 

Although the bankruptcy code did provide defenses before the law change, such as the ordinary course of business and/or the new value exception to a preference, these law changes now provide certainty against preference actions in these types of workouts.

If you have questions regarding preference actions, you should contact Jim Shenwick at (212) 541-6224 or jshenwick@gmail.com to discuss the facts or strategies involved in those cases. 



 

 

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