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 Wyoming, 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 occurs when a debtor makes a payment or transfer of an interest in property to a creditor within 90 days before filing for bankruptcy (or within 1 year if the creditor was an insider), while insolvent, and such transfer enables the creditor to receive more than they would have in a Chapter 7 liquidation case. The trustee has the power to avoid these transfers to ensure equitable distribution among all creditors. If a trustee identifies a preferential transfer, they can file an action in bankruptcy court to recover the assets or funds (clawback) so that they can be redistributed as part of the bankruptcy estate. The goal is to prevent any creditor from receiving an unfair advantage over others and to preserve the integrity of the bankruptcy process. It's important to note that there are certain defenses and exceptions to what constitutes a preferential transfer, and an attorney can provide specific guidance on how these rules apply to individual cases.