Check Clearing and Voidable Preference Law Under the Bankruptcy Code

Authors

David G. Carlson, Benjamin N. Cardozo School of LawFollow

Publication Date

Summer 2018

Journal

Business Lawyer

Abstract

Every business practice must withstand the critique of federal voidable preference law. This article surveys how well check clearing system fares under this adjunct to the principle that unsecured creditors should share equally in a bankruptcy proceeding. Check clearing involves extending short-term credit by depositary banks to their customers. Banks routinely extend unsecured and secured credit. The fate of a bank in its customer's bankruptcy differs, depending on what kind of credit is extended. In the case of an overdraft, banks have preference risk, but they also have powerful defenses to muster against liability. In the case credit is advanced against the deposit of checks, the risk is smaller but still existent. This latter case includes the concept of check kiting, which this article explores.

Volume

73

Issue

3

First Page

627

Last Page

710

Publisher

American Bar Association

Keywords

Bankruptcy, voidable preferences, banking, check clearing, UCC Article 4, payments

Disciplines

Bankruptcy Law | Law | Securities Law

Recommended Citation

David G. Carlson, Check Clearing and Voidable Preference Law Under the Bankruptcy Code, 73 Bus. Law. 627 (2018).
https://larc.cardozo.yu.edu/faculty-articles/800