Settlement Agreement
(Anticipating Preferential Transfer Claims)

Summary

This template is a clause in a settlement agreement for use in the conditions precedent or release section of a settlement agreement. This template includes practical guidance and drafting notes. Section 547 of the Bankruptcy Code sets forth the criteria for bringing a preference action in a bankruptcy proceeding. Preference actions generally allow for the avoidance of any debtor payments that were made to creditors in the 90 days prior to the bankruptcy filing. The policy underlying this is to prevent the debtor from preferring some creditors over other creditors leading up to the bankruptcy. This clause addresses the risk of a potential preferential transfer claim requiring the return of the settlement payment. For more information, see Settlement Agreements in Bankruptcy. For information about preferences, see Preferences and Fraudulent Conveyances versus Preference Actions.