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AN UNSECURED TRADE CREDITOR WHOSE CUSTOMER FILES A
bankruptcy petition is at risk of being compelled to repay, as preferences, all payments the creditor receives within 90 days of the bankruptcy filing date. Let us now return to the what one Circuit Court of Appeals humorously refers to as "the Preference Zone". Section 547(b) of the Bankruptcy Code permits a trustee or debtor-in-possession to recover a payment or other transfer to a trade creditor as a preference by proving a transfer of the debtor's assets; to or for the benefit of the creditor; on account of antecedent indebtedness owing by the debtor to the creditor; within 90 days of the filing of the bankruptcy petition; when the debtor was insolvent; and which enabled the creditor to receive a greater recovery than the creditor would have recovered in a Chapter 7 liquidation. Congress provided for this preference avoidance power to ensure an equitable distribution of the debtor's assets among all of the debtor's creditors and to discourage creditors from racing to the courthouse to recover on their claims ahead of other creditors, and thereby precipitate the debtor's bankruptcy filing.
Our adventure in the Preference Zone focuses on the method of computing the 90-day preference period. The manner in which the 90-day period is computed can determine whether a payment or other transfer was made during the preference period. According to Rule 9006(a) of the Federal Rules of Bankruptcy Procedure, when counting, either forward or backward, the first day of the computation period is not counted and the last day of the computation period is counted. By way of example, in the case of forward counting, the date of the transfer (e.g., the clearance date of the check), and in the case of backward counting, the bankruptcy filing date are not counted. The Rule further provides that if the last day of the computation period is a Saturday, Sunday or legal holiday the computation period should be extended to the next business day. Applying this method of computation to the 90-day preference period, if the computation is backward from the bankruptcy filing date and the 90th day falls on a Saturday, Sunday or Monday (if a legal holiday), the preference period would be extended to the...