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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 37871
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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How long must pass for a business not to be vulnerable to clawbacks

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How long must pass for a business not to be vulnerable to clawbacks from a client who filed chapter 11? Also, are there steps to avoid the clawback prior to the bankruptcy, and if so what? For example, will prepayment make you exempt from clawbacks? Payment within terms?


The Chapter 11 debtor can avoid any payment to a creditor not made in the ordinary course of business within the 90 days prior to filing of the bankruptcy petition -- unless the payment is for less than $5,850.


Hope this helps.


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Customer: replied 6 years ago.
I'm not sure what you mean. If my business extends credit to someone and they pay me, and then a week later they file Chapter 11, does that payment get taken back from me and redistributed to the creditors? How far can the payments go back? 30 days? 90 days? 6 months? A year?

If I am prepaid and someone files for chapter 11 a week later is the prepayment protected from a clawback?


If your business extends credit to a debtor and that debtor files bankruptcy during the following 90 days, then the debtor can get its money back, unless the amount of the payment is less than $5,850, or the debt is paid in the "ordinary course of busiess according to ordinary business terms."


In other words, if this is a typical transaction between the debtor any you, that you and the debtor would ordinarily do -- and the terms of the transaction are typical -- then you can resist the transfer and keep the payment.


Otherwise, you can be forced to return the payment.


Hope this helps.

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