Most Creditors No Longer Receiving Sub-$5,000 Preferences

The results of NACM’s first monthly survey question illustrated that preference
claims for under $5,000, forbidden by the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA), have all but vanished since the law’s
enactment. Of the responses to the survey question, "Have you received a
preference claim for less than $5,000 since the passage of the BAPCPA in 2005?,"
95% answered "no" while the remaining 5% said the opposite. The topic of
trustees sending out unenforceable preferences demanding less than $5,000 had
been raised at several NACM events, but, according to the survey, the issue
seems to be isolated to a select few creditors.

Among participants that answered "yes," it was noted that while the amount of
preferences has decreased in the wake of the BAPCPA, problems still exist on
several fronts including Chapter 9 filings and the currently rising number of
business bankruptcies, which are starting to recover to pre-BAPCPA levels.
"Chapter 11 and 7 filings have decreased. However, Chapter 9 filings in my area
of the country have increased," said one respondent. A Chapter 9 bankruptcy can
only be filed by a municipality, political subdivision or public agency.
"Governmental agencies, particularly hospital districts are overly burdened with
debt coupled with decreased revenues. When government agencies file Chapter 9,
they are in control with few to none of the creditor protections in a typical 11
or 7. Creditor recoveries are virtually nonexistent, as are the available
revenue streams for pre-petition debt."

Another respondent noted that as bankruptcy filings continue to recover,
preferences are expected to increase for their company. "Now that we have passed
two years since BAPCPA, the number of preferences has dropped off," said the
respondent.

"As more companies rushed to beat the October 2005 effective date of the new
provisions I had a surge in filings in the first three quarters of ‘05, which
resulted in a surge of preference challenges in the first three quarters of ‘07.
In the last 12 months, I’ve faced about four or five challenges. In the last 18
months I’ve faced about nine." "As bankruptcy filings are once again picking up,
I suspect that my preferences demands will follow suit in about 18-24 months,"
they added.

This month’s survey asks about your experiences with "fast-track"
bankruptcies, an option offered to small businesses in certain provisions of the
BAPCPA. To participate, visit NACM’s homepage at www.nacm.org.

Jacob Barron, NACM staff writer

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