Preference Demand Letter - Professional Litigation Document

You are tasked with drafting a comprehensive and legally sound Preference Demand Letter for use in bankruptcy proceedings. This critical litigation document serves to recover preferential transfers made by a debtor prior to filing for bankruptcy protection under 11 U.S.C. § 547.

Understanding the Document's Purpose

A Preference Demand Letter represents the formal initial step in recovering assets that were transferred to creditors during the preference period—typically 90 days before the bankruptcy filing for ordinary creditors, or one year for insiders. This letter must accomplish multiple objectives simultaneously: it establishes the legal foundation for the preference claim, provides irrefutable factual documentation of the challenged transfers, demands return of the transferred property or its monetary value, and sets the stage for potential litigation if voluntary compliance is not forthcoming. The tone must strike a careful balance between professional courtesy and unmistakable firmness, demonstrating both legal authority and willingness to pursue all available remedies.

Gathering Essential Information and Documentation

Before drafting begins, you must conduct a thorough investigation to gather all relevant information about the transfers at issue. Search through all available case documents to identify and extract specific details about each transfer, including exact dates, precise amounts, payment methods, check numbers, wire transfer confirmations, invoice references, and the identities of all parties involved. Examine bank statements, accounting records, payment ledgers, and any correspondence related to the transfers. Verify the bankruptcy petition date, case number, court jurisdiction, and chapter under which the case was filed. Identify whether the recipient qualifies as an insider under bankruptcy law, as this determination affects the applicable preference period. Confirm the debtor's insolvency during the relevant timeframe, noting that insolvency is presumed during the 90 days preceding the petition date. Document the recipient's status as a creditor and establish that the transfers were made on account of antecedent debt rather than contemporaneous exchanges.

Structuring the Letter with Professional Formality

Begin the letter with proper business formatting on appropriate letterhead, whether from the bankruptcy trustee's office or representing counsel's law firm. The header should include complete contact information, the current date, and the recipient's full name and address with proper title. Prominently display the bankruptcy case caption, including the debtor's name, case number, chapter, and the court in which the case is pending. This formal structure immediately conveys the serious legal nature of the communication and provides essential reference information for all subsequent correspondence.

Open with a professional salutation addressing the recipient by proper title and full name. In your introductory paragraph, clearly identify yourself as the bankruptcy trustee, debtor-in-possession, or authorized legal representative, and explicitly state your statutory authority to pursue preference actions under the Bankruptcy Code. Immediately establish the letter's purpose with direct, unambiguous language: you are demanding the return of a preferential transfer made by the debtor prior to the bankruptcy filing. Reference the specific bankruptcy chapter and petition date to provide temporal context. This introduction should leave no doubt about the gravity of the matter while maintaining the professional courtesy expected in legal correspondence.

Presenting the Factual Foundation

Develop a comprehensive and meticulously detailed description of each transfer being challenged. For every transfer, specify the exact date of occurrence, the precise dollar amount or property value transferred, the specific method of transfer such as wire transfer with confirmation number, check with check number, ACH payment with transaction identifier, or property conveyance with recording information. If multiple transfers are at issue, present them in chronological order with clear separation between each transaction, perhaps using a numbered or tabular format for clarity. Include all relevant documentary references such as invoice numbers, purchase order numbers, account numbers, or any other identifiers that establish the transfer's authenticity and create an audit trail.

Explain the context surrounding these transfers by describing the underlying debt or obligation that prompted the payment. Detail the business relationship between the debtor and recipient, the nature of goods or services provided, and the payment terms originally agreed upon. This narrative should demonstrate that the transfers were made on account of antecedent debt—meaning the debt existed before the transfer occurred—which is a critical element of a preference claim. Support every factual assertion with references to specific documents, and indicate that documentary evidence substantiating these facts is available and will be produced in any subsequent litigation.

Establishing the Legal Framework

Articulate a thorough legal analysis demonstrating why each identified transfer constitutes a voidable preference under 11 U.S.C. § 547(b). Systematically address each of the five elements required to establish a preference claim. First, explain how the transfer was made to or for the benefit of a creditor, identifying the recipient's creditor status and the nature of the debt. Second, demonstrate that the transfer was made for or on account of an antecedent debt that existed before the transfer occurred, distinguishing this from a contemporaneous exchange for new value. Third, address the debtor's insolvency at the time of transfer, noting the statutory presumption of insolvency during the 90 days immediately preceding the bankruptcy petition and citing any additional evidence of insolvency if the transfer occurred outside this presumption period.

Fourth, establish that the transfer occurred within the applicable preference period—90 days before the petition date for ordinary creditors, or one year for insiders as defined in 11 U.S.C. § 101(31). If the recipient qualifies as an insider, explain the basis for this classification, whether through family relationship, corporate control, or other statutory criteria. Fifth, demonstrate that the transfer enabled the recipient to receive more than they would have received in a hypothetical Chapter 7 liquidation if the transfer had not been made, typically by showing that unsecured creditors in this case will receive less than 100% distribution.

Anticipate and address potential defenses that the recipient might raise. Analyze whether the ordinary course of business defense under § 547(c)(2) applies by examining whether the debt was incurred in the ordinary course of business, whether the payment was made in the ordinary course of business or according to ordinary business terms, and whether the payment timing and amount were consistent with past practices between the parties. Consider whether the contemporaneous exchange defense under § 547(c)(1) might apply, and explain why the transfer does not qualify as a substantially contemporaneous exchange for new value. Evaluate whether the recipient provided new value under § 547(c)(4) after receiving the preferential transfer, which could reduce the recoverable amount. Your analysis should preemptively address these defenses, explaining why they do not apply or how they fail to defeat the preference claim based on the specific facts of this case.

Formulating the Demand with Precision

State the demand with absolute clarity and specificity, leaving no ambiguity about what is required. Specify the exact amount demanded for return, calculated to the penny, and if multiple transfers are involved, provide both individual amounts and the total sum demanded. Clearly identify acceptable methods of payment, such as wire transfer to a specified account or certified check, and provide complete payment instructions including bank routing numbers, account numbers, payee name, and mailing address for checks. Establish a firm deadline for compliance, typically 30 days from the date of the letter, and explicitly state that time is of the essence.

Address whether interest will accrue on the demanded amount, specifying the applicable interest rate and the legal authority for such interest, whether based on the federal judgment rate under 28 U.S.C. § 1961 or another applicable standard. Include language preserving all rights to seek additional amounts, including pre-judgment interest, post-judgment interest, costs of collection, and attorneys' fees as authorized under 11 U.S.C. § 550. Make clear that this demand is made without prejudice to any other rights or remedies available under the Bankruptcy Code or applicable non-bankruptcy law, and that acceptance of partial payment does not constitute a waiver of the right to pursue the full amount owed.

Outlining Consequences and Available Remedies

Clearly but professionally explain the consequences of failing to comply with the demand within the specified timeframe. Describe your preparedness to file an adversary proceeding in the bankruptcy court under 11 U.S.C. § 547 to avoid the transfer and recover the property or its value pursuant to 11 U.S.C. § 550. Explain that such litigation may result in the recipient being liable not only for the preference amount but also for the trustee's or estate's attorneys' fees and costs, which can substantially increase the total liability. Reference the bankruptcy court's authority to enter judgment and the enforceability of such judgments through all available collection mechanisms.

Note that if the recipient cannot establish an affirmative defense to the preference claim, the trustee may seek summary judgment, potentially resulting in a swift judgment without the need for trial. Explain that judgments in preference actions are enforceable through the same mechanisms as other civil judgments, including garnishment, levy, and other collection procedures. If appropriate to the circumstances, mention that failure to respond to this demand may be considered evidence of the recipient's inability to assert a viable defense. Throughout this section, maintain a professional tone that conveys seriousness and resolve without crossing into threatening or unprofessional language. The message should be clear: litigation is an available remedy that you are fully prepared to pursue, but voluntary compliance remains the preferred resolution.

Closing with Professional Authority

Conclude the letter by reiterating the core demand in a single, clear sentence that restates the amount demanded and the deadline for compliance. Invite the recipient to contact you with any questions or to discuss potential resolution, providing direct contact information including your phone number, email address, and office address. Express willingness to consider reasonable payment arrangements if immediate full payment presents genuine financial hardship, but make clear that the underlying obligation itself is not subject to negotiation—only the terms of payment may be discussed.

Close with a professional sign-off such as "Sincerely," "Very truly yours," or "Respectfully," followed by a signature block containing your typed name, professional title, law firm or office name, complete contact information, and any applicable bar numbers or professional designations. If the letter is being sent on behalf of a trustee, ensure the trustee's name and appointment authority are clearly indicated.

Quality Standards and Final Review

The completed letter must be formatted as a professional business letter on appropriate letterhead, using single-spacing within paragraphs and double-spacing between paragraphs. Employ a standard legal font such as Times New Roman, Calibri, or Arial in 12-point size for optimal readability. The overall length should typically range from two to four pages depending on the complexity and number of transfers involved, striking a balance between comprehensive coverage and concise communication.

Maintain a tone throughout that is firm, professional, and authoritative without being hostile, inflammatory, or unnecessarily aggressive. Every factual assertion must be accurate and verifiable through supporting documentation that you have reviewed. All legal citations must be precise, properly formatted, and current, reflecting the most recent statutory language and applicable case law. Proofread the entire document carefully for any errors in grammar, spelling, punctuation, or formatting, as such errors significantly undermine credibility in legal correspondence and may suggest lack of attention to detail in the underlying legal analysis.

Before finalizing the letter, verify that all case-specific information has been accurately incorporated, including case numbers, dates, amounts, and party names. Confirm that the legal analysis is tailored to the specific facts of this case rather than relying on generic template language. Ensure that the demand amount has been calculated correctly and that all payment instructions are accurate and complete. The final product should reflect the highest standards of legal writing and professional communication, positioning the estate favorably for either voluntary compliance or subsequent litigation.