New York Demand Letter Defense Lawyers

As the name implies, a demand letter is a letter that demands the recipient to do something, whether it be to take a certain action or cease a certain action. Demand letters are common in legal disputes between creditors and debtors, particularly, when a debtor in bankruptcy wants to recover the preferential payments made to a creditor. 

Preference payments to creditors are made in the 90-day period before a bankruptcy claim is filed. The purpose of preference payments is to ensure creditors are paid fairly, as these payments tend to be higher than what the creditor would receive in the bankruptcy case. The problem is that when a debtor pays some creditors but not others, even though the creditors are in the same class, then it will appear as though the debtor gave a preference, or “preference payment,” to those creditors. As a result, the debtor may not have enough funds to pay the remaining creditors in a bankruptcy filing.

Since bankruptcy strives to treat all creditors fairly, however, then any preference payments made to creditors could be rescinded by the bankruptcy trustee so the debtor can adequately pay all their creditors. It is common for debtors to prioritize paying some creditors over others prior to filing, but the bottom line is that bankruptcy laws provide for the fair treatment of all creditors in a bankruptcy claim. 

This means that a bankruptcy trustee will need to take certain actions to get the preference payments refunded. Those actions include clawback claims. However, before the clawback claim, also called a “preference claim,” is filed, the creditor may receive a demand letter. 

In the demand letter, the creditor will learn how much they owe and what could happen if they don’t return the alleged preference payments. Contact us at (646) 941-8685 to discuss your situation and learn more.

What Happens If I Don’t Respond to a Demand Letter? 

If a creditor fails to respond to a demand letter, the bankruptcy trustee or debtor will file a complaint to begin an adversary proceeding against that creditor. An adversary proceeding in bankruptcy court is essentially a lawsuit. Lawsuits are the last thing a creditor ― and debtor ― want to deal with, so there is hope.  

Creditors may negotiate a settlement or work to get the complaint dropped altogether by arguing that they didn’t receive a preference payment or by using an affirmative defense. If successful in this counterclaim, creditors may not have to refund the money altogether or could achieve a lower settlement.