Also known as a preferential transfer. A transfer made by an insolvent debtor to a creditor in payment of a preexisting debt within 90 days before the date when the bankruptcy petition is filed (or if the creditor is an insider, within one year of the filing) that allows the benefiting creditor to receive more than it would have otherwise received in a Chapter 7 liquidation. The debtor is presumed insolvent on and during the 90 days immediately preceding the date of the filing of the petition. Such transfers may be recovered by the debtor-in-possession or the Chapter 11 trustee for the benefit of all creditors, helping to ensure an equality of distribution among creditors of the same class.

For further information, see Practice Note, Preferential Transfers: Overview and Strategies for Lenders and Other Creditors.