This article was originally published in the January 2014 issue of Pratt's Journal of Bankruptcy Law.

Preference actions are common in bankruptcy cases. These actions seek to claw back payments made by a debtor to a creditor during the 90 days before the commencement of a bankruptcy case.

As if buying distressed debt is not challenging enough given the underlying business considerations, the possible, and perhaps likely, bankruptcy filing of your soon-to-be borrower presents a maze of issues the note purchaser should consider before acquiring the debt.

1. Know Your Seller