Legal Definitions - surrender of a preference

Definition: Surrender of a preference is a term used in bankruptcy law. It refers to the act of a creditor giving up a transfer, assignment, encumbrance, or conveyance that is considered voidable. This is done as a condition for the creditor to be allowed to make a claim in the bankruptcy proceedings.

Example: Let's say a debtor owes money to two creditors, A and B. The debtor transfers a valuable asset to creditor A, which is considered a preference because it gives A an advantage over B. If the debtor files for bankruptcy, the trustee can demand that creditor A surrenders the asset to the bankruptcy estate. This is done to ensure that all creditors are treated equally and that no one receives preferential treatment.

Another example: A company owes money to several suppliers. One of the suppliers, who is also a shareholder in the company, receives a payment that is considered a preference because it was made shortly before the company filed for bankruptcy. The trustee can demand that the supplier surrenders the payment to the bankruptcy estate so that it can be distributed among all the creditors.

The examples illustrate how the surrender of a preference works in practice. It is a way to prevent creditors from receiving preferential treatment and to ensure that all creditors are treated equally in a bankruptcy proceeding.