The Bankruptcy Preference Complaint

This article is provided in order to help those who have received or who may be receiving an adversary proceeding complaint for the recovery of preferential transfers under Bankruptcy Code Section 547 – entitled “Preferences”.  A sample adversary proceeding complaint for the recovery of bankruptcy preferences is provided below.  For those who simply want to see a sample complaint, you can skip right to the complaint at the bottom of this article.  The materials provided before you get to the complaint provide a foundation for understanding the terminology and elements of the complaint.

If you have received a complaint for recovery of a bankruptcy preference a good starting point is the article “A Three Question, Preliminary Self Assessment of a Bankruptcy Preference Claim“, which provides a bridge from the theory of bankruptcy preference law to a practical, initial assessment of an avoidable transfer claim under Section 547 of the Bankruptcy Code.

We also have developed a 5 part video walk through of a sample bankruptcy preference complaint.  In Part 1, we address the unique nature of an adversary proceeding and provide an introduction to the five elements of an adversary proceeding complaint. Clicking on this link with take you to “Part 1 – The 5 Elements of an Adversary proceeding Complaint – An Introduction.

Basic Adversary Proceeding Concepts

If this is your first time dealing with a bankruptcy preference adversary proceeding or at least the threat of one, reviewing a few basic concepts may be helpful:

1. An Adversary Proceeding is a Lawsuit brought in Federal Bankruptcy Court.

An action to recovery a bankruptcy preference is a lawsuit brought in United States (federal) court.  Just remember, this is real litigation with real consequences.  Failure to answer can result in default judgment.  Failure to follow the rules can mean that defenses get waived or, worse yet, the answer can be dismissed if the rule violations are sufficiently severe.

2.  The Players – “Who is suing me?”

You may never have heard of the person suing you to recover a bankruptcy preference.   This is because the right to recovery a bankruptcy preference is considered “property” of the debtor just like inventory, equipment, building, etc.  Like any property, the ownership of the property can be transferred by sale or by operation of law.  The person suing you may be the debtor, the trustee, the creditor committee, a plan representative or a purchaser under a Section 363 sale.

Whoever is suing you makes little practical difference in terms of understanding the allegations in a complaint. (It can make a big difference in negotiating strategy.)  Whoever is suing you will be attempting to collect the same preference claim that was originally held by the debtor.   Lets just refer to any of this player as the “Preference Collector.”  Fortunately, the Preference Collector will usually explain who it is in the first or second paragraph of the initial demand letter and, in any event, under the heading “Parties” of the complaint.

Just remember that the person on the other side is a lawyer.  He or she makes a living collecting preference claims.  He or she does not have to tell you that you may have defenses.  Defenses have to be proven by you.

3.  Rules and More Rules.

There are four rule books that set rules for the lawsuit.  The Federal Rules of Civil Procedure apply to these proceedings and, among other things, establish requirements for form and content of pleadings – e.g. complaints, answers, motions.  Additionally, because the federal court is bankruptcy court, the Federal Rules of Bankruptcy Procedure also apply.  The bankruptcy courts of each district also have their own “local rules”.  Finally, the bankruptcy court may have entered an order adding to these other rules still more rules to be applied a  particular case or particular types of cases.

In sum, the hierarchy of rules governing bankruptcy proceedings goes:  Federal Rules of Civil Procedure; Federal Rules of Bankruptcy Procedure, Local Rules, Bankruptcy Court Order establishing procedures.

4  Adversary Proceedings and the Original Bankruptcy Case are Separate But Still “Associated” Cases

The key concept to keep in mind is that a complaint to recover bankruptcy preferences is a lawsuit separate from the original bankruptcy case.  It will have its own case number.  It will have its own named plaintiff and named defendant.   Only the complaint will appear in the original bankruptcy case docket.  After that, the adversary proceeding will have its own, separate docket.

Although an adversary proceeding is a separate case, it is referred to as an “associated case” of the original bankruptcy.  That is why when you see a complaint in an adversary proceeding, the first page will have at the top:  “In re [Name of Debtor]”.   Below that you will see the separate statement of the names of the plaintiff, defendant and case number.

5.  Words may Vary;  Allegations are the Same

The bankruptcy preference adversary proceeding complaint against a supplier of goods or services only is required to include a few, simple allegations.  In the sample, there are only 25 numbered paragraphs.  For a case filed in federal court, that is a very short complaint.

The plaintiff only has to make 5 simple, substantive allegations in the complaint.  Those simple allegations are listed in subsection (b) of Section 547.

6.  Why are there 3 “Counts” and What is a “Count” anyway?

A “count” is just a way to organize allegations in a lawsuit.  In a well organized complaint, each count will be based on distinct legal theory that allows the plaintiff  to make a claim against you.

7. What is the Last Count that refers to 11 U.S.C. § 502(d).

The Preference Collector is threatening not to pay you your unsecured claim if you do not pay back the preference.   Section 502(d) requires the bankruptcy court to disallow any claim under Section 501 (claims for which you have filed or are deemed to have filed a proof of claim) unless any preference payments are first repaid.

Unfortunately, debtors and trustee are using Section 502(d) to also delay, defeat or reduce creditor rights to administrative expenses under Section 503.  So you may see variations of this count that reference administrative expenses and/or Section 503.  We do not think that the Bankruptcy Code allows a bankruptcy preference claim to be a defense to allowance of an administrative expense.  If you have this situation, we recommend you read our article:  Debtors’ Bankruptcy Preference vs Administrative Expense Play – A tactic that Needs to be Stopped.


A Sample Adversary Proceeding Complaint to Recover a Bankruptcy Preference under Section 547




In re:


[Bankrupt Customer’s Name]



Reorganized Debtor.


Chapter [7] [11]

Case No. 00-00000-AAA











[Name of Customer’s Bankruptcy Representative]






[Your Company’s Name]




Adversary Proceeding No. 00-000000













Plaintiff [Customer’s Bankruptcy Representative], Plan Administrator of [Bankrupt Customer] (the “Plan Administrator”), brings the instant Complaint to Avoid and Recover Preferential Transfers made by [Bankrupt Customer] (the “Debtor”) to defendant [Your Company] (the “Defendant”) prior to the filing of the Debtors’ respective petitions for relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. § 101 et seq (the “Bankruptcy Code”).

Jurisdiction and Venue

BurbageWeddell Annotation:  Note that the Preference Collector is required to allege jurisdiction and venue.  Click either of the following links to see our articles on: the jurisdictional defense to bankruptcy preference actions and the use of the venue “defense” in certain courts.

1. This is an adversary proceeding pursuant to Rule 7001 of the Federal Rules of Bankruptcy Procedure and Section 547(b) of the Bankruptcy Code, to recover avoidable transfers made by the Debtor to the Defendant.

2. This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334.

3. This adversary proceeding constitutes a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F).

4. This District is the proper venue for this proceeding pursuant to 28 U.S.C. § 1409.


BurbageWeddell Annotation:  In multiple debtor bankruptcies, we can not emphasize enough the importance of making sure that you advise your counsel if you contracted with or provided goods or services to more than one of the named debtors.  The Preference Collector may try and lump all the debtors together in making a preference claim.  This may allow the Preference Collector to avoid defenses and may damage your ability to prove defenses.  Incorrect debtor identification or failing to distinguish between debtors may not occur often, but when it does is can be a big obstacle in bankruptcy preference defense.

5. Plaintiff, [the Customer’s Bankruptcy Representative] is the Plan Administrator appointed by this Court pursuant to the confirmed Chapter 11 Liquidating Plan of [the Bankrupt Customer] and its Debtor Subsidiaries dated [__________].

6. Upon information and belief, Defendant has its principal place of business in [__________].


7. The Debtors’ jointly administered cases were commenced by the filing of the Debtors’ respective voluntary Chapter 11 Petitions on [Filing Date].

8. On [Confirmation Date] the Court entered an Order Confirming the Chapter 11 Liquidating Plan (“Confirmation Order”) by which it confirmed the Second Amended Joint Chapter 11 Liquidating Plan of [the Bankrupt Customer] and its Debtor Subsidiaries (“Second Amended Joint Plan”).

9. Pursuant to the Second Amended Joint Plan and the Confirmation Order, the Plan Administrator was appointed to liquidate and distribute certain assets remaining in the Debtors’ estate.

10. Among other things, the Plan Administrator was vested with the estates’ rights to avoid and recover preferential transfer made by the Debtors pursuant to Bankruptcy Code §547.

Payments by the Debtor

11. The Debtors made one or more payments to the Defendant in the amount of $[________] in the manner and amounts set forth in Exhibit 1 attached hereto.


12. The following causes of action are asserted against the Defendant herein without prejudice to any rights the Plaintiff or Debtors may have, or which this Court may grant to the Plaintiff or Debtors, to assert additional causes of action or allegations based on facts disclosed in documents or other information made available to the Plaintiff or Debtors in the future or developed as a result of discovery or otherwise.


BurbageWeddell Annotation:  If you compare the allegations in Count I with the facts that the trustee is required to prove, you will see that the paragraphs below practically are word for word taken from Section 547(b). Click on the preceding text to see Section 547(b).

13. The Plaintiff restates and incorporates herein by reference the allegations contained in paragraphs 1 through 12 above.

14. The payments identified on Exhibit 1 attached hereto (the “Payments”), constitute transfers of property of the Debtors to or for the benefit of the Defendant, who was a creditor of the Debtors.

15. The Payments were made for or on account of antecedent debts allegedly owed by the Debtors to the Defendant.

16. The Debtors were presumptively and actually insolvent at the time of the Payments.

17. The Payments were made on or within the 90 days before the Petition Date.

18. By virtue of the Payments, the Defendant received more than it would have receive if the Debtors’ estates had been liquidated under Chapter 7, the Payments had not occurred, and the Defendant had received payments of the debts to the extent permitted by the Bankruptcy Code.

19. The Payments constitute avoidable preferences pursuant to Section 547 of the Bankruptcy Code.


20. The Plaintiff restates and incorporates herein by reference the allegations contained in paragraphs I through 19 above.

21. Defendant was the initial transferee of the Payments or the immediate or mediate transferee of such initial transferee or the person for whose benefit the Payments were made.

22. Unless otherwise determined after a trial, pursuant to 11 U.S.C. §550(a), Plaintiff is entitled to recover from Defendant the sum of $[_______] plus interest thereon to the date of payment and the costs of this action.


23. The Plaintiff restates and incorporates herein by reference the allegations contained in paragraphs I through 22 above.

24. Defendant was the initial transferee of the Payments or the immediate or mediate transferee of such initial transferee or the person for whose benefit the Payments were made.

25. Pursuant to 11 U.S.C. § 502(d), any claims of Defendant against the Debtors must be disallowed until such time as Defendant pays to Plaintiff an amount equal to the aggregate amount of all the Avoidable Transfers, plus interest thereon and costs.


WHEREFORE, the Plaintiff respectfully requests that this Court grant judgment as follows:

(a) Declare the Payments to be avoidable preferences and award judgment against the Defendant in the amount indicated;

(b) Award pre-judgment and post-judgment interest;

(c) Pursuant to 11 U.S.C. § 502(d), disallow, any claim of Defendant against Debtors; and

(d) Grant such other and further relief to the Plaintiff as may be just and proper.


Alpha, Bravo and Charlie LLC



Counsel to Plan Administrator of Bankrupt Customer