Preferring to be paid

A roofing customer who enters bankruptcy can lay claim to payments already rendered

Imagine the perfect roofing project. Your work is performed on time, under budget and without any workmanship issues. You submitted your pay applications every month, and the project owner diligently made payments within 30 to 45 days. The project closed without incident, and you received final payment, including payment of your retainage. You then find out the owner has filed for bankruptcy protection.

Six weeks later, you receive a letter from an attorney asking you to return the last three monthly payments you received from your customer. You think the attorney is crazy, but in an abundance of caution, you consult your counsel who explains the area of the law that allows for reclaiming of earned money. Your attorney explains you now are the subject of a preference claim.

What is it?

A preference claim arises in the context of a bankruptcy case. In the example, the owner filed for bankruptcy protection. The preference claim is made by the bankruptcy trustee to recover the debtor's assets for distribution to all creditors in accordance with applicable law. Preference claims must be brought within two years after a bankruptcy petition is filed or one year after the appointment or election of the first trustee, whichever occurs first.