In our last post we outlined the second of three common defenses to preference claims, the “subsequent new value” defense. Now let’s look at the third common defense, “contemporaneous exchange for new value”, in a bit more detail.

Contemporaneous exchange for new value is very much like a COD transaction. For this defense, you give something of value to the debtor (e.g., goods; services), but at the same time you give this value to the debtor – and because you and the debtor have previously so agreed – the debtor immediately (contemporaneously) remits payment to you. That immediate payment may otherwise fall within the definition of preference payment, but you do not have to return it because it was a contemporaneous exchange for the new value you provided to the debtor.