Legal Definitions - antecedent debt

An antecedent debt refers to an obligation or amount of money that was already owed and in existence before a specific event, transaction, or agreement took place. It is a pre-existing debt, meaning the liability was incurred prior to the current situation being examined.

This concept is particularly relevant in legal contexts such as bankruptcy, where courts might scrutinize payments or transfers made to satisfy these pre-existing debts shortly before a debtor files for bankruptcy. The key characteristic is that the debt existed in the past, preceding the action being reviewed.

• Example 1 (Bankruptcy Preference): A small business owes its primary supplier $20,000 for materials delivered over the past six months. One week before the business officially files for bankruptcy, it pays the supplier the full $20,000. A bankruptcy trustee might later examine this payment.

  Explanation: The $20,000 debt for materials delivered over the past six months is an antecedent debt. It existed long before the payment was made and the bankruptcy filing occurred. The payment was made to satisfy this pre-existing obligation, which could potentially be challenged as a preferential transfer in bankruptcy law.

• Example 2 (Securing an Old Loan): Sarah borrowed $5,000 from her friend Mark in January, promising to repay him by the end of the year. In April, Mark becomes concerned about repayment and asks Sarah for collateral. Sarah then gives Mark the title to her car as security for the original $5,000 loan.

  Explanation: The $5,000 loan from January is an antecedent debt. When Sarah provides the car title as collateral in April, she is securing a debt that already existed, rather than a new loan made at that moment. The security interest is given for a pre-existing obligation.

• Example 3 (Settlement of Accounts): A freelance graphic designer completed a project for a client in March and invoiced them for $3,000. The client, facing cash flow issues, offers to provide the designer with free office space for three months in July, specifically to settle the outstanding $3,000 bill.

  Explanation: The $3,000 owed for the graphic design project completed in March is an antecedent debt. The client's offer of office space in July is intended to satisfy this pre-existing financial obligation, not to pay for new services rendered at that time.