by Bill Gray
In our last
post we outlined the "ordinary course payment" legal defense against a bankruptcy preference claim. Now let's look at the "subsequent
new value" defense in a bit more detail.
Subsequent new value is in the nature of a set off, and
is meant to encourage creditors to continue to deal with a company
that may be close to filing bankruptcy. The defense says that if, after you
receive a payment that otherwise qualifies as a preference, you give new
"value" to the debtor, you essentially get to deduct the new value from the
For example, say you receive a payment of $50,000 from a
debtor, and that payment otherwise falls within the definition of preference
payment as discussed in our prior posts. But then, after you receive that
payment, you give new goods or services to the debtor, and these new goods or
services also have a value of $50,000. This "subsequent new value" would
protect the prior $50,000 preference payment, and you would not have to return
the $50,000 already paid.
In the next post, we'll examine another one of these
defenses so your company can be prepared if you are contacted by a trustee
wanting a return of payment. If you get confronted with a preference claim, you
should contact a Virginia creditors' rights lawyer who can explain your
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