Recovery of Property by Trustees in Bankruptcy in the Federal Courts

The-trustee in bankruptcy may have occasion to recover money or property for the benefit of the creditors of the bankrupt, either upon the ground that the property was transferred, or the money paid, in fraud of creditors or that the same constituted a preference of one creditor over the others. There are three sections of the Bankruptcy Act\u27 pertinent to these problems. Section 60 provides for the recovery of preferences obtained by one creditor within the next preceding four months from the filing of the petition in bankruptcy. The theory here, of course, is to distribute the assets of the bankrupt equitably among all the creditors rather than to permit one creditor to obtain a greater share than his fellows. The recovery is supposed to be allowed solely by reason of the principle of equitable distribution. However, if the creditor can show that upon reasonable grounds he was ignorant of the fact that a preference would be effected at the time he received the preference, he will not be liable therefor. This is a practical compromise, to avoid embarrassing and unfair results to a creditor who has taken what he thought he was entitled to take, in payment of a bona fide debt and in ignorance of the fact that other creditors would not obtain payment of their claims