Preferential transfers not always legitimate.

• Position: Bankruptcy

It is a phenomenon that is sweeping the nation. As bankruptcy filings continue to increase, debtors and trustees are becoming much more aggressive in demanding that creditors return payments received prior to the bankruptcy filing. That is correct. Not only are creditors having to face the losses that result from the bankruptcy protections afforded their customers, but they actually are being told that they have to return money they already have received. The purpose of this process--known as preferential transfers--is to recover payments that allowed a creditor to get an advantage a short time before the bankruptcy case was filed.

"I call this the 'double whammy,'" says attorney Robert S. Bernstein. "Your customer files [for] bankruptcy. You know you're not going to be collecting the rest of what you are owed anytime soon, if ever, and then you get this letter from someone representing the debtor's bankrupt estate demanding that you return a payment already received. So, not only do you have a dead account, but now you're supposed to send money back to the debtor's bankrupt estate!"

Seem unfair? Well, according to Bernstein, it might be more than unfair. That demand might not be worth the paper it's written on. "Just because you get an official-looking

demand letter or pleading doesn't mean you should automatically assume you have to return the money. There are a lot of aggressive bankruptcy representatives out there sending these letters out without [much] research as to which claims for preferential transfers are legitimate and which are not. The problem is that not every preference demand is legitimate, and unwary creditors are giving back money that is rightfully theirs. Every creditor owes it to himself to take a little time to investigate the legitimacy of the claim."

Bernstein, who is board certified in both Creditors' Rights and Business Bankruptcy, offers the following tips for contending with a potential "double whammy":

* Do not immediately...