A letter just landed: a customer who owed you money filed bankruptcy, and now a trustee wants you to hand back the payment they made you before the filing. Take a breath — this is more common than it feels, and you almost certainly have real defenses. What you're facing is a preference claim, and it's only a claim, not a judgment. Under federal bankruptcy law (11 U.S.C. § 547), a trustee can try to "avoid" (claw back) certain payments a debtor made shortly before filing, on the theory that paying you instead of everyone else was unfair to the other creditors. It doesn't mean you did anything wrong — you were paid what you were owed.
The one thing not to do is nothing. These demands carry hard deadlines, and ignoring a letter — or a lawsuit served on you — can turn a beatable claim into a default judgment for the full amount. So respond deliberately: understand why this happened, line up your defenses, figure out what you actually owe (often far less than demanded), and act before any clock runs out. This is federal law, handled in Missouri's federal bankruptcy courts (Eastern or Western District), not state court.
Why this is happening to you
It feels personal, but it isn't about fault. Bankruptcy assumes similar creditors should share the debtor's limited assets proportionally, so if your now-bankrupt customer paid you in full during its final slide while leaving others unpaid, the trustee can try to "recapture" that money and spread it across all creditors.
To win, the trustee has to prove every element of a preference. A payment is preferential only if it was:
- Made to a creditor — someone the debtor owed.
- On an antecedent (existing) debt — a bill that already existed before the payment.
- Made while the debtor was insolvent — and the law presumes insolvency during the 90 days before filing.
- Made within the look-back period — generally 90 days before the bankruptcy filing, or up to one year if you are an "insider" (an officer, director, relative, or affiliated company).
- Enough to let you recover more than you would have gotten in a hypothetical Chapter 7 liquidation.
If even one element fails, the claim fails — and a demand letter proves none of it. It's the opening move.
Your defenses are the good news
Here is the reassuring part: the same statute that hands the trustee this power also gives you several strong statutory defenses under 11 U.S.C. § 547(c). These are where most preference disputes are won, narrowed, or settled. The big three:
- Ordinary course of business. This is the workhorse, and the most common winning defense for trade creditors. If the payment was made on normal terms consistent with your prior dealings — or with ordinary terms in your industry — it is protected. If your customer always paid you in about 40 days and the challenged checks arrived in roughly 40 days, that consistency is the backbone of this defense.
- Contemporaneous exchange for new value. If you gave goods or services at roughly the same time as the payment (think cash-on-delivery), the payment was not really on an old debt at all, so it is protected.
- Subsequent new value. If, after a payment, you shipped more goods or extended more credit that went unpaid, that value offsets the preference — often dollar-for-dollar. This rewards creditors who kept doing business with a struggling customer.
There are also statutory floors and limits that can knock out small claims entirely. The point is that you start this fight with the law on your side, not against you.
Do not ignore the deadline
Whether you got a letter or a lawsuit changes how fast you must move, so figure out which you are holding.
- A demand letter is not a lawsuit. It is less urgent, but you should still respond promptly and assert your defenses in writing rather than letting it sit.
- An adversary complaint and summons is a lawsuit — filed inside the bankruptcy case as an "adversary proceeding." You generally have a limited window (often about 30 days) to file an answer, and missing it risks a default judgment for the entire amount demanded. Calendar that date the moment you see it.
Either way, confirm the basics: that the bankruptcy was actually filed, the filing date, and which Missouri district it is in. These anchor everything else.
Gather your records and build your defenses
Preference defenses live and die on records, not memory. Before you respond, pull together the paper that proves your defenses, ideally going back a year or two so you can show a real payment pattern.
- Invoices and statements showing when each debt was incurred and the agreed terms.
- Your payment history / accounts-receivable ledger showing how this customer actually paid over time — the raw material for the ordinary-course defense.
- Proof of payment — copies of checks or ACH records and the dates funds cleared.
- Shipping and delivery records establishing any new value you gave before or after the payments.
Then do the math. Calculate the days-to-pay on each invoice and compare the challenged payments to that baseline for the ordinary-course defense. Separately, list every shipment or service you provided after a challenged payment that went unpaid — that subsequent new value comes straight off the recoverable amount. The further back your clean records go, the stronger your baseline.
Calculate your real exposure, then respond
The number on the demand letter is rarely the number you actually owe. Run your defenses against the records and you will usually find your true exposure is a fraction of the demand.
- Subtract what ordinary course protects. Payments that fit your historical timing pattern generally drop out.
- Subtract your new value. Goods and services you shipped on credit after a payment, and were never paid for, reduce the claim dollar-for-dollar.
- Check the floors. Small aggregate transfers can fall below statutory minimums and not be recoverable at all.
- Put it in writing. Send the trustee a clear, documented summary of your defenses. Federal law now expects the trustee to consider your known defenses before pressing a claim, so a tidy defense package often produces a quick, favorable resolution.
Most preference claims settle, frequently for a small fraction of the original demand, because a well-documented defense analysis drives the number down. Once your records are organized, you're negotiating from strength.
When to get a Missouri bankruptcy attorney
These matters are deadline-driven and the adversary-proceeding process is specialized, so it's worth getting advice — especially if the amount is significant, you've been served and the answer clock is running, or you're unsure whether you count as an "insider." An attorney admitted in the relevant Missouri bankruptcy court can confirm what the trustee must prove, value your § 547(c) defenses against your records, and negotiate or litigate the clawback. Getting counsel early keeps your options open.
Frequently Asked Questions
Do I have to give the money back if I did nothing wrong?
Not necessarily. A preference claim does not depend on fault — being paid what you were legitimately owed can still be a preference. But the statutory defenses in 11 U.S.C. § 547(c), especially ordinary-course-of-business and subsequent new value, frequently reduce or eliminate what you actually have to return. Your defenses, not your innocence, are what protect you.
How far back can the trustee reach?
Generally 90 days before the bankruptcy filing for an ordinary creditor. If you are an "insider" — an officer, director, relative, or affiliated company — the look-back extends to one year. Payments outside that window are not preferential at all.
What is the ordinary-course-of-business defense?
Under 11 U.S.C. § 547(c), a payment is protected if the debt arose in the ordinary course and the payment was made either consistent with your normal dealings with this customer — judged against your own history — or according to ordinary terms in your industry. If a customer who usually paid in about 40 days paid the challenged invoices in roughly that timeframe, the consistency generally supports the defense. It is the most common winning defense for trade creditors.
What is "new value," and why does it help me?
New value generally means goods, services, or credit you provided. If you gave it at roughly the same time as the payment, that is a contemporaneous exchange and the payment is protected. If you shipped goods or services on credit after a preferential payment and were never paid, that subsequent new value offsets the preference, often dollar-for-dollar, under 11 U.S.C. § 547(c).
Is this a federal or Missouri state matter?
Federal. Preference law lives in the U.S. Bankruptcy Code (Title 11), and Missouri has no preference statute of its own. The dispute is handled as an adversary proceeding in the United States Bankruptcy Court — the Eastern District (St. Louis, Cape Girardeau) or the Western District (Kansas City, Springfield, Jefferson City) — where the underlying case was filed.
How fast do I need to respond?
It depends on what you received. A demand letter is not a lawsuit, but answer it promptly and assert your defenses in writing. If you have been served with an adversary complaint and summons, you generally have a limited window — often about 30 days — to file an answer, and missing it can lead to a default judgment for the full amount.
Legal Disclaimer
This guide provides general legal information about federal bankruptcy law as it affects Missouri creditors and is not legal advice. It does not create an attorney-client relationship. Preference law is federal and fact-specific, and deadlines are strict; consult a qualified attorney admitted in the relevant Missouri bankruptcy court promptly if you receive a preference demand or an adversary complaint.