Bankruptcy Litigation Committee

ABI Committee News

Litigating the “Ordinary Course” Defense Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

As we await the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (2005 Act), there is much discussion of the Act’s high-profile provisions, such as its restrictions on eligibility for chapter 7 relief via “means testing,” and the limitations on the scope of state law homestead exemptions. However, this expansive legislation includes many other provisions—mostly pro-creditor—that have largely slipped “under the radar.”

One such provision of significance to bankruptcy litigators is the expansion of the “ordinary course” preference defense under §547(c)(2) of the Code. As discussed herein, the 2005 Act de-emphasizes (and arguably eliminates) the requirement that the alleged preference payment be made according to “ordinary business terms.” This amendment to §547(c)(2) will apply in cases filed after the effective date of the 2005 Act, October 17, 2005. It should considerably simplify the task of defense counsel in preference cases.

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Utilizing a Jury Demand to Obtain Leverage in a Preference Case

Preference suits have become the bankruptcy equivalent of spam e-mail. Like spam, the suits are usually sent out en-masse to distant shores and make dubious claims. As people have discovered new methods of dealing with spam, they have become more adept at fighting “dragnet” preference suits. This article gives some snapshots of defenses found well outside of §547.

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