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Construction and Bankruptcy: Avoiding Clawback; Preserving Defenses When a Project Partner Goes Bankrupt

Recording of a 90-minute CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Thursday, October 26, 2023

Recorded event now available

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This CLE webinar will describe preference demands in bankruptcy and the financial effects these demands made by bankrupt construction project participants may have on their non-bankrupt project partners. The panel will discuss Section 547(c) defenses for preference demand recipients as well as noteworthy state law defenses with unique considerations for the construction industry. The panel will also provide best practices for assisting clients in preparing for and responding to preference demands.


In an unstable commercial real estate market, construction project participants may be faced with one of their project partners filing for bankruptcy. One project participant's bankruptcy has rippling effects that can be detrimental to the whole project.

Once a party files for bankruptcy (the debtor), an automatic stay prohibits creditors--including those with whom the debtor is involved in a project--from seeking further payments. However, the debtor also has the ability to "clawback" or demand the return of all payments made by the debtor to their creditors during the 90-day period leading up to the bankruptcy filing (preference demands). This means that non-bankrupt project participants may suffer the financial consequences of not only possibly forfeiting future payments but also returning past payments unless they have a viable defense.

Bankruptcy Code Section 547(c) provides defenses to preference demands that can reduce or eliminate liability for non-bankrupt project participants. State laws provide additional defenses. Construction counsel should be aware of these defenses and how to advise their clients to prepare for and respond to preference demands.

Listen as our expert panel discusses the effects of preference demands on non-bankrupt construction project participants. The panel will describe federal defenses to these demands, including those in Section 547(c), and notable state law defenses. The panel will also provide best practices for assisting clients to prepare for and respond to preference demands.



  1. Introduction: overview of current real estate market and effect on construction projects
  2. Possible financial effects of project partner's bankruptcy on non-bankrupt project participants
  3. Preference demands
  4. Preference demand defenses
    1. Section 547(c) defenses
    2. Other federal defenses
    3. Noteworthy state considerations and defenses
  5. Insurance and surety bond considerations
  6. Best practices


The panel will review these and other important considerations:

  • What are possible financial repercussions that a project partner's bankruptcy may have on non-bankrupt project participants?
  • What are the federal defenses to preference demands, including Section 547(c) defenses?
  • What are state law considerations and noteworthy defenses?
  • Under what circumstances should certain defenses be used when responding to preference demands?
  • Are there any insurance and/or surety bond considerations?
  • How can counsel help their clients prepare for possible preference demands when they first learn of a project partner's bankruptcy?


Cromeens, Karalynn
Karalynn Cromeens

Owner and Managing Partner
The Cromeens Law Firm

Ms. Cromeens holds more than 17 years of experience practicing construction, real estate, and business law. She has...  |  Read More

Sigmond, Carol
Carol Sigmond

Greenspoon Marder

With more than four decades of legal experience, Ms. Sigmond focuses her practice on construction industry matters,...  |  Read More

Sparacino, John
John Sparacino

McKool Smith

Mr. Sparacino has more than 30 years' experience handling complex bankruptcy-related matters, including...  |  Read More

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