How do you fightfight an “insider” allegation in a Chapter 11?

UPDATED: Jul 14, 2010

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How do you fightfight an “insider” allegation in a Chapter 11?

A corporation was forced into Chapter 11 Bankruptcy. All creditors who were paid the past year before bankruptcy was filed were allegedly insiders.” I received a letter from the trustee demanding me to return monies that I received, although it does not fall within the 90 days and I am in no way an insider, just a creditor. I don’t know what to do and am very worried this will turn into a disaster when I am being accussed of something that is not true. How can I prove I am not an insider so they will leave me alone? What else do I need to do?

Asked on July 14, 2010 under Bankruptcy Law, California


M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

The job of a Trustee in a bankruptcy proceeding is to help sort out the financial mess of the bankrupt business and marshall assets to pay off debt.  "Insiders" are thos people (creditors) that may have been given preferential treatment by the debtor in paying off the debt.  There are standards as to what is considered a "preference" and the 90 day factor is but one of them used under the Bankruptcy Code (see section 547).  Note that the bankruptcy code permits some "preferences" in allowing debt to be paid to relatives etc.  I would seek help with rebutting hte presumption that is being made by the Trustee (see code section 11 U.S.C. 547(c)) and what you need to file in response.  Good luck.

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