Lesson: Disaffirmed Preferences

In this lesson, Nick Palazzolo, CPA, dives into the intricacies of disaffirmed preferences within the context of bankruptcy. He elucidates on how a trustee can void preferential payments made to creditors prior to the bankruptcy filing, a power likened to a clawback in the investment world, ensuring fairness and equity among all creditors. Nick illustrates this concept with practical examples, clarifies the criteria that characterize a preferential payment, and explains the conditions under which such payments can be recovered by the bankruptcy estate. He also details the specific exceptions to this rule and underscores the importance of unsecured creditors and shareholders filing the correct proofs to claim their right in the distribution, all while keeping the conventions of ordinary business transactions intact. This lesson is packed with critical insights into maintaining the integrity of the bankruptcy process and how it aims to prevent any creditor from receiving an unjust advantage.