Miss this issue in a bankruptcy case, and money you thought was safely paid can get clawed back months later. A preference payment is a payment or transfer a debtor makes to one creditor shortly before filing bankruptcy that gives that creditor more than it would likely receive through the normal bankruptcy process. Under 11 U.S.C. § 547, a bankruptcy trustee can often recover that payment and bring it back into the estate so creditors are treated more evenly.

The basic idea is fairness. If someone heading toward bankruptcy pays one credit card, one medical bill, or one supplier while leaving everyone else to wait in line, the law may treat that payment as a preferential transfer. In many cases, the look-back period is 90 days before the bankruptcy filing, or one year for certain insiders such as relatives, business partners, or company officers.

This can matter a lot in an injury-related case. If an injured person uses settlement money to pay one pressing debt and then later files bankruptcy, that payment may be challenged. It can also affect lawyers, medical providers, or other creditors who were paid shortly before the filing. Timing matters, and so does the source of the money.

Washington does not have a separate state rule that replaces the federal preference law, so cases filed in the U.S. Bankruptcy Court for the Western or Eastern District of Washington follow the federal statute. Like traffic on I-5, a quick payment made under pressure can create a backup later.