Legal Definitions - new value

In legal contexts, particularly within bankruptcy law, new value refers to money, goods, services, or new credit that a creditor provides to a debtorafter the debtor has made a payment or transfer to that creditor. This concept is crucial when determining whether a payment made by a debtor shortly before filing for bankruptcy (known as a "preferential transfer") must be returned to the bankruptcy estate.

If a creditor provides new value to the debtor after receiving a preferential transfer, this new value can sometimes offset or reduce the amount the creditor would otherwise have to return to the bankruptcy estate. The new value must benefit the debtor's estate and cannot simply be an obligation substituted for an existing one.

• Example 1: Supplier Providing New Inventory

  Imagine a small manufacturing company, "Widgets Inc.," is struggling financially. On March 1st, Widgets Inc. pays its raw material supplier, "Metals Co.," $10,000 for a past due invoice. Two weeks later, on March 15th, Metals Co. ships a new order of essential raw materials worth $8,000 to Widgets Inc. on credit, allowing Widgets Inc. to fulfill new customer orders. If Widgets Inc. files for bankruptcy on April 1st, the $10,000 payment to Metals Co. might be considered a preferential transfer.

  How this illustrates "new value": The $8,000 worth of raw materials provided by Metals Co. on March 15th constitutes "new value." This is because Metals Co. supplied goods that benefited Widgets Inc.'s operations and estate *after* receiving the potentially preferential $10,000 payment. This new value could potentially reduce the amount Metals Co. would have to return to Widgets Inc.'s bankruptcy estate.

• Example 2: Consultant Offering Additional Services

  A marketing agency, "Creative Campaigns," is owed $5,000 by a client, "Local Boutique," for services rendered last month. On April 5th, Local Boutique pays Creative Campaigns the full $5,000. Recognizing Local Boutique's financial difficulties, Creative Campaigns then offers an additional week of pro bono social media consulting services, valued at $2,000, to help Local Boutique boost sales, which they provide from April 10th to April 17th. Local Boutique files for bankruptcy on May 1st.

  How this illustrates "new value": The $2,000 worth of additional social media consulting services provided by Creative Campaigns represents "new value." These services were rendered *after* Creative Campaigns received the $5,000 payment from Local Boutique, and they directly benefited Local Boutique by attempting to improve its business prospects. This new value could be used to offset a portion of the $5,000 payment if it were deemed a preferential transfer.

• Example 3: Bank Extending New Credit

  A construction company, "BuildRight," repays $25,000 to its bank, "First National Bank," on June 1st, reducing its outstanding loan balance. On June 10th, after reviewing BuildRight's updated business plan, First National Bank approves a new, separate $15,000 short-term credit line to BuildRight, specifically for purchasing a critical piece of equipment needed for an upcoming project. BuildRight files for bankruptcy on July 1st.

  How this illustrates "new value": The $15,000 new credit line extended by First National Bank on June 10th is "new value." This new credit was provided *after* BuildRight made the $25,000 repayment, and it directly benefited BuildRight by enabling the acquisition of essential equipment, thereby enhancing the company's assets and operational capacity. This new value could potentially reduce First National Bank's liability if the $25,000 repayment were challenged as a preferential transfer.