Which of the following acts by a debtor would constitute a 'preference' voidable by a bankruptcy trustee?

Answer options:

Paying a fully secured creditor in full.

Paying a $10,000 antecedent debt to a vendor 60 days before filing bankruptcy while insolvent.

Buying inventory for cash in the ordinary course of business.

Paying a utility bill on time.

How to approach this question

Preference Criteria: 1. Transfer to creditor. 2. Antecedent (old) debt. 3. Within 90 days. 4. While insolvent. 5. Creditor gets more than they would in liquidation.

Full Answer

B.Paying a $10,000 antecedent debt to a vendor 60 days before filing bankruptcy while insolvent.✓ Correct

A preferential transfer is a transfer of the debtor's property to a creditor for an antecedent debt, made while the debtor was insolvent, within 90 days of filing, that enables the creditor to receive more than they would have under Chapter 7. Paying an unsecured vendor for an old debt fits this.

Common mistakes

Thinking paying a secured creditor is a preference (it's not, because they are secured).

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