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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 12744
Experience:  B.A.; M.B.A.; J.D.
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I received a bankruptcy preference demand letter for $1200

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I received a bankruptcy preference demand letter for $1200 that was paid to our business for goods and services within the 90 day period prior to their petition date. This $1200 balance was not for a past debt but rather was a prepayment for a service they received 3 days later. From my understanding, the preference demand can only be for a transfer of funds for an existing debt, correct? Furthermore, this balance is under the $5000 limit so do I even have to respond to this letter? If I should respond, does someone have a sample letter I can use to send the trustee?
Submitted: 1 year ago.
Category: Bankruptcy Law
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Expert:  Phillips Esq. replied 1 year ago.
Thank you for giving me the opportunity to assist you. Kindly use CONTINUE or REPLY button to ask for clarification or follow-up questions.



Question: I received a bankruptcy preference demand letter for $1200 that was paid to our business for goods and services within the 90 day period prior to their petition date. This $1200 balance was not for a past debt but rather was a prepayment for a service they received 3 days later. From my understanding, the preference demand can only be for a transfer of funds for an existing debt, correct?


Response 1
: Yes, but the Trustee has a way of turning any debt to an existing debt. So, what you think may be a contemporaneous exchange may be regarded by the Trustee as a preference payment especially since this was a prepayment for a debt that did not even exist at the time of the payment. See 11 U.S.C. Section 547(c)(1). However, if you lose the argument on the contemporaneous exchange, you can certainly rely on the safe harbor provision, which exempts any payment under $5,850.00 for non-consumer debt as a preference payment. See 11 U.S.C. Section 547(c)(9).




http://www.burbageweddell.com/resources/bankruptcy-creditor-statutes/bankruptcy-code-section-547-annotated/




Furthermore, this balance is under the $5000 limit so do I even have to respond to this letter?




Response 2: Yes, you do have to respond. Not responding is not a good idea. If you do not respond, the Trustee would send you another demand letter and if you ignore that one, the Trustee would file a lawsuit against you. So, it is better to respond and tell the Trustee why his demand to turn over property would not be complied with.



Unfortunately, I do not have a "sample letter" to provide to you because response to preference demand is case specific. There is no form letter for it. The letter is structured to respond to specific demand by the Trustee. In this case, your argument would be that this was a contemporaneous exchange and thus exempt under 11 U.S.C. Section 547(c)(1) as preference payment. Also, it is exempt as preference payment because the amount involved is less than $5,850.00. See 11 U.S.C. Section 547(c)(9).




http://www.burbageweddell.com/resources/bankruptcy-creditor-statutes/bankruptcy-code-section-547-annotated/





If I should respond, does someone have a sample letter I can use to send the trustee?



Response 3: Unfortunately, I do not have a sample letter for you, but see my previous responses and the link below on how to respond to preference demand letter from the Trustee:




http://www.burbageweddell.com/bankruptcy-preferences-process-of-resolution/the-negotiation-process-the-bankruptcy-preference-demand-letter/

Customer: replied 1 year ago.

Thank you for your response. So you recommend sending a letter pointing out that this was a contemporaneous exchange and thus exempt under 11 U.S.C. Section 547(c)(1) as preference payment. Also, it is exempt as preference payment because the amount involved is less than $5,850.00. See 11 U.S.C. Section 547(c)(9)? Once I send this letter, can he still pursue this amount even though it's under the exempted amount as explained in 11 U.S.A Section 547 (c)(9)?

Expert:  Phillips Esq. replied 1 year ago.

Thank you for your response. So you recommend sending a letter pointing out that this was a contemporaneous exchange and thus exempt under 11 U.S.C. Section 547(c)(1) as preference payment. Also, it is exempt as preference payment because the amount involved is less than $5,850.00. See 11 U.S.C. Section 547(c)(9)?


Response 1: Yes. You should also attach any evidence of the payment to support your argument along with a copy of your invoice showing when the debt was incurred and when it was paid.


Once I send this letter, can he still pursue this amount even though it's under the exempted amount as explained in 11 U.S.A Section 547 (c)(9)?



Response 2
: Yes, he can if for instance you did not attach a copy of the payment showing that the amount is less than $5,850.00 So, in your response, you need to provide any and all documentation that would give the Trustee a chance to review your case to see if you are entitled to the exemption(s) that you are claiming.

Customer: replied 1 year ago.

I just tried replying but it doesn't look like it worked. Do you think the letter below plus a copy of the customers check stub plus a copy of our invoice should be enough documentation for the trustee or should I attach anything else or add anything to this letter?


 


March 5, 2013


 


Mr. William Kaye, Managing Director of JLL Consultants, Inc.


Buffets R Restaurants Holdings, Inc.


c/o Protiviti, Inc.


1 East Pratt Street, Suite 800


Baltimore, MD 21202


 


RE: Response to Preference Demand In re: Buffets Restaurants Holdings, Inc., et al. Chapter 11, Bankruptcy Case No.12-10237


 


Dear Mr. Kaye:


 


My name isXXXXX I am the General Manager of the Daily Republic Newspaper, a creditor in the above referenced case.


 


Although the Daily Republic received funds from the Debtor during the ninety-day period preceding the Petition Date (January 18, 2012), or (“Preference Period”), the transfer is not recoverable because the transfer was made as a contemporaneous exchange from the perspective of both the Daily Republic and Tahoe Joe’s Famous Steakhouse and thus exempt under 11 U.S.C. Section 547(c)(1) as preference payment. I’ve included a copy of the check stub from Buffets Inc., and the statement showing the prepayment for the services provided to the debtor. Also, it is exempt as preference payment under 11 U.S.C. Section 547(c)(9) because the amount involved is less than $5,850.00.


 


If you have any additional questions or concerns, please do not hesitate to contact the Daily Republic via phone: XXX-XXX-XXXX, fax: XXX-XXX-XXXX or XXXXXXXX@XXXXXX.XXX.


 


 


Best Regards,


 


 


T Burt McNaughton


General Manager


Daily Republic Newspaper

Expert:  Phillips Esq. replied 1 year ago.

I just tried replying but it doesn't look like it worked. Do you think the letter below plus a copy of the customers check stub plus a copy of our invoice should be enough documentation for the trustee or should I attach anything else or add anything to this letter?

Response:
The only thing you can legally do and more importantly that is expected of you is to attach any and all documentation supporting your claim that the payment eventhough within the preference period should be exempted by providing the evidence of payment and your request for the payment. What the Trustee does after that is up to the Trustee. However, if the Trustee still objects to the payment, the Trustee must then file a lawsuit. You would then be given opportunity to tell the Court your side of the case. The Court would ultimately make the decision.

Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 12744
Experience: B.A.; M.B.A.; J.D.
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