A bankruptcy trustee may set aside a 'preferential transfer' made by the debtor. Which of the following payments made by a debtor 60 days before filing for bankruptcy would most likely NOT be considered a preferential transfer?

Answer options:

A payment of ,000 to a supplier for a debt incurred 6 months ago.

A payment of ,000 to fully pay off a secured loan where the collateral was worth ,000.

A payment of ,000 to a utility company for the current month's electric bill.

A payment of ,000 to the debtor's brother for a personal loan.

How to approach this question

Identify the elements of a Preference: Transfer for antecedent debt, within 90 days (1 year insider), insolvent, creditor gets more than in Ch 7. EXCEPTIONS: Ordinary course of business, contemporaneous exchange, new value.

Full Answer

C.A payment of ,000 to a utility company for the current month's electric bill.✓ Correct

The 'ordinary course of business' exception prevents the trustee from clawing back payments for current expenses (like utility bills) incurred and paid in the normal course of affairs.

Common mistakes

Thinking all payments within 90 days are preferences.

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