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October 23, 2025
You got paid, now the bankruptcy trustee wants it back
You got paid, now the bankruptcy trustee wants it back. Here’s why your business could be on the hook, even if you earned every dollar…
It sounds unbelievable, but it happens more often than business owners realize. You ran your business, did your job, and got paid. Then, a few months later, a bankruptcy trustee calls, demanding that you return the money.
This is what is known in bankruptcy law as a preference. A preference occurs when a debtor pays a creditor shortly before filing bankruptcy. Trustees look for payments made within 90 days (or one year for insiders) before a bankruptcy filing and tries to “claw them back” from the creditor. This situation can occur even if you earned every penny through legitimate work or sales, complied with the terms of the contract and can demonstrate the work or goods were provided.
The good news is that a preference claim is almost always negotiable and there are several affirmative defenses you can assert to retain your money, such as:
- The “Ordinary Course of Business” Defense – Protects business transactions between a debtor and a creditor that are within the ordinary course of dealing between the parties or the industry.
- The “Contemporaneous Exchange of New Value” Defense – Transfer not recoverable as a preference to the extent it was intended to be, and is, a contemporaneous exchange.
- The “Subsequent New Value” Defense – Creditors entitled to credit against preference claim for new extension of goods/services following alleged preference payment.
Rite Aid’s Bankruptcy: A Case Study
The real-world impact of preference claims is highlighted in the bankruptcy case filed by Rite Aid in May of 2025.
Citing over $2 billion in debt and declining drug sale margins, Rite Aid filed for Chapter 11 bankruptcy for the second time in two years.
In connection with the sale of its assets and other matters, Rite Aid is attempting to claw back preferential payments made to pharmaceutical vendors, contractors, IT providers, landlords, and consultants which occurred before its bankruptcy filing.
Protect Your Business
Whether you’re an independent contractor, a family-owned supplier, or a large consulting firm, being forced to return funds to the bankruptcy estate could be detrimental to the well-being of an otherwise thriving business. If your business receives a preference demand:
- Don’t ignore it.
- Don’t pay it without review.
At Hill Wallack LLP, we help businesses evaluate preference claims, assert defenses, and protect cash flow. With decades of experience representing creditors nationwide, we know how disruptive preference demands can be, and we’re here to guide you through every step of the process.
Contact Michael Kahme, Eric Kelner, Mark Roney, or Daniel Kaschak at Hill Wallack LLP to
discuss your situation confidentially.
