Preferential payments are payments of legitimate debts prior to fliing a bankruptcy. Under certain circumstances a bankruptcy trustee can force the party who received payment to pay the money that he received over to the bankruptcy estate.
The basis for this law is that a debtor should not be able to prejudice other creditors by paying all of his money to a selected few. Any payment made to a creditor on a debt that is not created in a contemporaneous transaction can be voided if the payment occurred within 90 days of the filing. The time period is one year for payments to family members.
The primary defense to preferences is that the payment was made in the ordinary course of business.
Because of this exposure that sellers have to the bankruptcies of buyers on credit, sellers should structure their collection procedures in a way that will minimize their exposure to bankruptcy trustees.