The two concepts get mixed up all the time. They sound similar. They both involve a debtor moving money before a bankruptcy or a collection lawsuit. They both can lead to that money being clawed back. But they are different legal claims, with different rules, different remedies, and different strategic implications. Treating them as the same thing causes creditors to pursue the wrong theory, or miss a good claim entirely.
What a Preference Is
A preference is a payment a debtor makes to one creditor while insolvent, within a specific window of time before bankruptcy. The idea behind the rule is fairness. In a bankruptcy, all creditors of the same priority should get treated equally. A debtor who pays his favorite creditor, or his mother, in full the week before filing, while leaving other creditors with nothing, has given that creditor a preference the trustee can take back.
Federal Bankruptcy Concept
The preference rules are part of federal bankruptcy law. They apply when the debtor files. There is no state-court preference case. No bankruptcy, no preference.
The 90-Day Window (or One Year for Insiders)
The trustee can look back at payments the debtor made in the 90 days before the bankruptcy filing. For payments to insiders (spouses, relatives, controlled entities), the lookback extends to one year.
No Fraud Required
The preference rules require no fraud, no intent to cheat, no inadequate value. A completely normal, legitimate payment of a legitimate debt can be a preference. If you got paid the right amount at the wrong time, the trustee can claw it back. The debtor may have done nothing wrong. The trustee is not trying to punish anyone. The trustee is collecting the money back so all creditors get treated the same way.
What a Fraudulent Transfer Is
A fraudulent transfer is a transfer made either with intent to hinder, delay, or defraud creditors, or for less than reasonably equivalent value while the debtor was in financial trouble.
Available Under State or Federal Law
TUFTA is the Texas state-law version. The bankruptcy code has its own fraudulent transfer provisions under Section 548. The state- law and federal versions overlap, but they are not identical.
Four-Year Lookback Under State Law
TUFTA’s lookback is four years, with a one-year-from-discovery extension. That is significantly longer than the preference window.
No Bankruptcy Required
A fraudulent transfer claim can be brought in state court without any bankruptcy proceeding. The creditor pursues it directly. This is the big practical difference from a preference, which exists only inside a bankruptcy.
Side-by-Side
The two theories differ across several axes. The comparison below covers the differences that matter most in practice.
A preference exists only inside a bankruptcy case. A fraudulent transfer claim can be brought in state court whether or not the debtor has filed bankruptcy.
A preference looks back 90 days, or one year for insider payments. A fraudulent transfer under TUFTA looks back four years, with the discovery extension.
A preference requires no fraud and no inadequate value. A fraudulent transfer requires either intent to defraud or inadequate value combined with insolvency.
Preferences are pursued by the bankruptcy trustee for the benefit of all creditors. Fraudulent transfer claims can be pursued by individual creditors in state court.
The remedy in a preference is generally return of the payment. The remedy in a fraudulent transfer is broader. Voidance, freezing, money judgments, attorney’s fees.
The Same Transaction Can Be Both
In a bankruptcy context, one transaction can give rise to both a preference claim and a fraudulent transfer claim. The debtor paid an insider, while insolvent, within one year of filing, for less than the value of what was received. That payment can be attacked as a preference under Section 547 and as a fraudulent transfer under Section 548. We look at both theories in every case where both might apply.
Defending a Preference Claim
If you are on the receiving end of a preference claim (you got paid, the debtor went bankrupt 60 days later, and now the trustee wants the money back), there are real defenses. The contemporaneous-exchange defense. The ordinary-course-of-business defense. The new-value defense. The substantially contemporaneous exchange defense. Each one has specific elements.
Most preference defenses live or die on the documentary record. Bills, payment histories, course-of-dealing evidence. We have defended preference claims successfully and unsuccessfully. The facts decide.
Frequently Asked Questions
I received a payment from a company that later went bankrupt. Am I liable to give it back?
You may be. If the payment was within 90 days of the bankruptcy filing (or one year, if you are an insider), the trustee may try to recover it as a preference. There are defenses. The first step is figuring out which defenses might apply to your specific payment history.
Which theory gives a creditor more recovery?
It depends on the facts. Preferences are easier to prove (no intent or inadequate value required), but the lookback is short. Fraudulent transfers require more proof but reach farther back and offer broader remedies. In a bankruptcy where both apply, the trustee usually pleads both.
What if the payment was made more than 90 days before the bankruptcy?
A preference claim usually does not reach it (one year for insiders). But a fraudulent transfer claim under either TUFTA or Section 548 may still reach it, depending on the facts.
The interaction between preference law and fraudulent transfer law has technical layers that this page does not get into in depth. Specific facts need specific analysis from a lawyer before you decide how to proceed.
The Texas Fraudulent Transfer Statutes are complicated affairs. These pages are meant to explain the law in terms that are as simple as we can make them. Sometimes we have ignored limited exceptions and other quirks in the law so that the general concepts could be conveyed clearly. Your situation needs to be carefully analyzed. No two situations are identical and you need legal advice before making an important decision. Use this website as a guide only.