A preferential transfer is made when a debtor—prior to filing for Chapter 7 bankruptcy—pays off a certain creditor or group of creditors, which causes other creditors to get less in the bankruptcy.

Preferential transfers (also called preferences) are prohibited because they benefit one creditor at the expense of the others.

When a bankruptcy trustee learns of a pre-bankruptcy payment or transfer that constitutes a preferential transfer, the trustee can petition the bankruptcy court to have the money or assets recovered (a clawback) and included in the bankruptcy estate—allowing the recovered money or assets to be used for the benefit all of the creditors.

In New Hampshire, as in all states, the concept of preferential transfers is governed by federal bankruptcy law, specifically under the U.S. Bankruptcy Code. According to 11 U.S.C. § 547, a preferential transfer is any payment or transfer of an interest of the debtor in property, made to or for the benefit of a creditor, for or on account of an antecedent debt, made while the debtor was insolvent, within 90 days before the date of the filing of the bankruptcy petition (or within one year if the creditor was an insider), that enables the creditor to receive more than it would have received if the transfer had not been made and the creditor's claim was paid through the bankruptcy proceedings. The trustee has the power to avoid such transfers and recover the assets or their value for the benefit of the entire pool of creditors. This is designed to ensure equitable distribution among all creditors in the bankruptcy process. New Hampshire does not have specific state statutes that alter the federal rules on preferential transfers in bankruptcy cases.