Is a bankruptcy trustee permitted to avoid making preferential payments to a debtor's creditors prior to the debtor filing for bankruptcy?

MultiRegion, United States of America

The following excerpt is from Diamond v. Empire Partners, Inc. (In re Empire Land, LLC), Adv. No.: 6:10-ap-01329-MH, Case No.: 6:08-bk-14592-MH (Bankr. C.D. Cal. 2016):

In general, 11 U.S.C. 547(b) permits a trustee to avoid various preferential transfers of a debtor's interests in property made prior to the commencement of a bankruptcy case. Begier v. United States I.R.S., 496 U.S. 53, 58 (1990). Equality of distribution among creditors is a central policy of the Bankruptcy Code. Id. at 58. According to that policy, creditors of equal priority should receive pro rata shares of the debtor's property. Id. Section 547(b) furthers this policy by permitting a trustee in bankruptcy to avoid certain preferential payments made before the debtor files for bankruptcy. Id. This mechanism prevents the debtor from favoring one creditor over others by transferring property shortly before filing for bankruptcy. Id.

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