In Re: Friedman’s Inc

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In the 90 days prior to filing for bankruptcy Debtor made payments for personnel to Roth Staffing totaling $81,997.57. After these preferential transfers, but before the petition was filed, Roth provided Debtor with services valued at $100,660.88 and was not paid. Debtor sought to pay its employees and independent contractors prepetition wages, compensation, and related benefits. The Bankruptcy Court granted the motion and after filing its bankruptcy petition, Debtor paid $72,412.71 to Roth for pre-petition staffing services. Debtor’s successor in interest later sought to avoid transfers made to Roth. Under the Bankruptcy Code, 11 U.S.C. 547(b), the trustee may avoid certain preferential transfers made by a debtor to a creditor during the 90 days before its bankruptcy petition was filed. A creditor who gives the debtor new value after a preference payment, however, may use the “new value” defense to offset an otherwise avoidable preference. That defense is not applicable to the extent that, thereafter, the debtor makes “an otherwise unavoidable transfer” to the creditor on account of the value received. The Bankruptcy Court, district court, and Third Circuit agreed that where “an otherwise unavoidable transfer” is made after the filing of a bankruptcy petition, it does not affect the new value defense.View "In Re: Friedman's Inc" on Justia Law