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How to stop a bankrupt customer from forcing you to give back previous payments – a useful article on preferences

Here’s a very readable article by one Robert Bertstein on how bankruptcy preferences work.

Vendors have a particular interest in this subject: If a customer files for bankruptcy protection, the bankruptcy trustee can, and often will, go to court to force its vendors to give back payments previously made for purchased goods or services.

The vendor is then usually left holding a claim against the bankruptcy estate, but the claim likely will be worth a fraction of the face amount.

That’s one of the many reasons it’s smart to keep an eye on the financial health of your customers.

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