The primary responsibility for managing, monitoring, and controlling Chapter 7 Bankruptcies lies with the U.S. Trustee’s Office. As the number of new bankruptcy cases mount, the U.S. Trustee’s Office has become more and more occupied with the day to day issues associated with management of Chapter 7 Bankruptcy Liquidations. Just as with all people, this level of activity has the impact of requiring Trustees to prioritize their time and procrastinate certain functions. Therefore, many trustees are not filing preference cases or instructing trustee’s counsel to initiate preference cases, until the absolute last moment prior to the expiration of the statute of limitations.

Creditors are finding that up to two or, even in some cases, three years after having a debtor file a bankruptcy, they are hauled into Bankruptcy Court on a preference case. This delay creates significant problems ranging from turnover in personnel, loss of records, and creating a false sense of security on behalf of the creditors. Generally speaking, the Bankruptcy Code requires a Trustee to initiate a preference case within two years of being retained. This retention date is triggered by the date the Bankruptcy Court enters an order for the appointment of the Trustee. This could be months after the actual case is filed. Further delaying the triggering of the clock is that many cases are started as Chapter 11 Reorganizations and, therefore, no Trustee is assigned. The two year statute of limitations “clock” is not triggered upon initiation of the Chapter 11 but rather upon entry of an order converting the case to a Chapter 7 and upon order for the appointment of a Trustee. This could mean that the debtor operates for a period as a Chapter 11 and then converts to a Chapter 7. Upon conversion (assuming the Chapter 11 period was not greater than one year), the Trustee will have the full two year window to file a preference case.

In light of the foregoing trend, and since many preference cases are defensible, at least in part, the following procedural steps are recommended upon receipt of a bankruptcy notice:

i) Review for payment history within 90 days.

ii) If payments have been received within the last 90 days, create a permanent record internally regarding dates received, invoices applied to, product advanced during the 90 day period, and historical payment history relating to this customer.

iii) Make sure your agency/attorney is aware of the fact that payments have been received and request that they retain records for the appropriate time period documenting the transactions.

iv) Make a permanent record of all persons involved in the dealings with the customer/debtor during this time period.

Should you follow these guidelines, you will insure your capacity to defend actions from the Sleepy Trustee and maximize your chances to defend and win preference cases.