A: When considering preferences, the first thing to look at is whether the payment meets the requirement of U.S. Bankruptcy Code Title 11, Chapter 5, §547 on Preferences. Often lease and utility payments do. We are not aware of any blanket exception for leases or utilities.

However, there are defenses. One defense is that the payments occurred in the ordinary course of business. Another is that the creditor gave new value in exchange for the payment. Here, the latter is probably the better defense. If the leased property remained in the debtor's possession after the payment, then new value was probably given. If the debtor continued to consume utilities after the payment, then there was probably new value.

Of course, if the lease or the utility service was terminated and then the payment was made, it is likely not a defensible preference. The facts are all important in determining this.

Our thanks to ABC- Amega Vice President, International & Corporate Quality, Bob Tharnish and Bob Bernstein, Bernstein Law Firm, for their help developing this response.

If you would like to comment on this, or submit a question of your own, please email your comments to info@abc-amega.com. We will include any responses of general interest in our next issue.

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Disclaimer: This information is provided by ABC-Amega Inc. and is not intended to be legal advice and is not a substitute for competent legal advice on the referenced subject.

ABC-Amega is a commercial receivable management firm providing 1st and 3rd-party receivable management services in the U.S. and more than 200 other countries worldwide.