Legal Definitions - voidable preference

A voidable preference is a type of preferential transfer made by an insolvent debtor to a creditor before filing for bankruptcy. This transfer allows the creditor to receive more than their fair share of the debtor's assets. Specifically, it refers to a transfer of property interest made for the benefit of a creditor who is owed on an earlier debt, occurring no more than 90 days before the bankruptcy petition is filed or within one year if the creditor is an insider.

For example, if a debtor owes $10,000 to Creditor A and $5,000 to Creditor B, but transfers $6,000 to Creditor B within 90 days before filing for bankruptcy, this transfer is considered a voidable preference. Creditor B would receive more than their fair share of the debtor's assets, and the bankruptcy trustee may recover this transfer for the benefit of the bankruptcy estate.

Voidable preferences are also known as preferential transfers, voidable transfers, or preferential assignments. They are different from fraudulent conveyances, which involve intentional transfers made to defraud creditors.