Q: Are Severance Payments given before company bankruptcy considered preferential payment?
If an employee of a company has a severance payment owed per there employment contract, and the company holds said severance payment in an escrow account in the name of the employee, if the employee is laid off due to insufficient funds or whatever reason that will trigger the severance payment, and the company files bankruptcy shortly thereafter (a month or so). Will this payment be considered a preferential payment and have the possibility of having to be returned due to the bankruptcy lookback?
A: It is very possibly a Preferential Transfer. But it is really for the Trustee to set aside and pursue the moneys paid out pre-petition. Employees will be considered Preferential Creditors usually, but a Severance Package is probably a Preference. The Defense for the employee is that it came from a Trust Account, not owned or from the Bankrupt.
Bruce Alexander Minnick agrees with this answer
A: It probably is a preference, but bc it’s paid from a trust account per an agreement, might be hard for them to recover from you.
Bruce Alexander Minnick agrees with this answer
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