Deprizio Doctrine Law and Legal Definition
Deprizio Doctrine is a principle of Bankruptcy law which says that a debtor's payment to an outside creditor more than 90 days before a bankruptcy filing is voidable as a preferential transfer if it benefits an inside creditor.
In Levit v. Ingersoll Rand Fin. Corp. (in Re Deprizio), 874 F.2d 1186 (7th Cir. Ill. 1989) commonly referred to as Deprizio, the Seventh Circuit addressed an issue no other circuit court had addressed before: whether payments to creditors who dealt at arms' length with a debtor are subject to the year-long preference-recovery period that 11 U.S.C. § 547(b)(4)(B) provides for "inside" creditors, when the payments are "for the benefit of" insiders. The court held that "the preference-recovery period for outside creditors [under § 547(b)] is one year when the payment produces a benefit for an inside creditor, including a guarantor".
The doctrine established by the Seventh Circuit in Deprizio was adopted by each of the five other Circuit Courts that later addressed the issue. Later, as part of the 1994 Act, Congress sought to eliminate the Deprizio Doctrine by amending § 550 of the Code. However, as most of the 1994 Act, including amended Code § 550(c), does not apply in bankruptcy cases commenced before its effective date of October 22, 1994, the Deprizio Doctrine continues to be the rule in cases commenced before October 22, 1994.
