Quick Answer
Your customer was incorporated in Delaware, which made Delaware a proper venue for its bankruptcy case under 28 U.S.C. § 1408. Once the case is there, adversary proceedings arising from it are properly brought there too under § 1409(a). Your own lack of any connection to Delaware is not a defense, because the bankruptcy rules authorize nationwide service of process. There is a small dollar venue limitation, but in Delaware it has become an uphill argument.
How Delaware Became the Venue
Section 1408 of title 28 permits a bankruptcy case to be filed in the district where the debtor is domiciled, has its residence, has its principal place of business, or has its principal assets, in each case for the greater part of the 180 days preceding the filing. It also permits filing in a district where a case concerning an affiliate is already pending.
For a corporation, domicile means the state of incorporation. Since a very large share of American public companies and a great many private ones are incorporated in Delaware, Delaware is a proper venue for their bankruptcy cases regardless of where they actually operate. A retailer with every store in the Southeast and a headquarters in Atlanta can file in Wilmington because its certificate of incorporation was filed with the Delaware Division of Corporations.
The affiliate provision compounds this. Once one entity in a corporate group files in Delaware, the rest of the group can follow, including entities with no independent Delaware connection at all.
None of this is a loophole. It is the statute operating as written, and the District of Delaware has become one of the busiest bankruptcy courts in the country as a result.
Why the Adversary Proceeding Is There Too
Section 1409(a) provides that a proceeding arising under title 11, or arising in or related to a case under title 11, may be commenced in the district court where the case is pending. So the preference action against you belongs in Delaware for the same reason the main case does.
The reason your lack of Delaware contacts does not help is Bankruptcy Rule 7004(d), which authorizes service of a summons and complaint anywhere in the United States. In ordinary civil litigation, a defendant with no contacts with the forum has a personal jurisdiction defense. In bankruptcy adversary proceedings, nationwide service means the usual minimum contacts analysis does not produce the same result. Your Ohio company can be brought into a Delaware court by mail.
The Small Dollar Venue Limitation, and Why It Is Harder Than It Looks
There is a provision that appears to solve this problem, and out-of-state defendants often find it before they find a lawyer. It deserves an honest explanation rather than an encouraging one.
Section 1409(b) requires that a trustee commence a proceeding “arising in or related to” a case, to recover a non-consumer debt against a non-insider below a threshold amount, only in the district where the defendant resides. That threshold was adjusted to $31,425 effective April 1, 2025. On its face, this looks like it sends every preference claim under roughly $31,000 back to your home district.
The difficulty is textual. A preference action under § 547 is a proceeding “arising under” title 11, because the cause of action is created by the Bankruptcy Code itself. Section 1409(b) covers proceedings “arising in or related to” a case and omits the “arising under” category, even though other subsections of § 1409 include it. Courts have split on whether that omission was deliberate or an oversight.
The Delaware history is the part that matters to you, and it has moved. In Dynamerica Manufacturing LLC v. Johnson Oil Co., LLC, 2010 WL 1930269 (Bankr. D. Del. May 10, 2010), the Court concluded that the omission was inadvertent and applied the limitation to preference actions, dismissing the case. For years that decision made Delaware a favorable forum for this argument.
More recent Delaware decisions have gone the other way, strictly construing the text and reasoning that Congress addressed “arising under” proceedings elsewhere in § 1409 and its omission from subsection (b) should be presumed intentional. The Insys Therapeutics litigation is the frequently cited example, where the defendant relied on Dynamerica and the Court declined to follow it. A growing majority of courts nationally take the same strict-text position.
The practical translation: this argument is worth evaluating, particularly if your exposure is genuinely small, but it is no longer the reliable exit it once was in Delaware. Anyone telling you a sub-$31,425 preference claim will simply be transferred home is describing the law as it stood some years ago.
Separately, and independently of the venue question, § 547(c)(9) bars a preference claim against a non-consumer debtor entirely where the aggregate value of the transfers is less than $8,575, as adjusted effective April 1, 2025. That is a substantive defense rather than a venue argument, and it is not subject to the same textual dispute.
What Actually Happens Next
Understanding the mechanics is more useful than relitigating venue.
You have a deadline. Under Bankruptcy Rule 7012(a), the answer is generally due within 30 days after issuance of the summons. Complaints in mass preference filings are frequently served on a registered agent or a corporate mailroom and then sit. Default judgments in these cases are common and they are entered against companies that had good defenses.
Your existing lawyer needs Delaware counsel. Under Del. Bankr. L.R. 9010-1(c), an out-of-state attorney cannot be admitted pro hac vice except in association with Delaware counsel, who must file all papers and attend proceedings. Subsection (d) gives a party 28 days after its first filing to associate Delaware counsel.
The claim you filed is now leverage against you, and for you. Section 502(d) allows the estate to disallow your claim until you return an avoidable transfer. It cuts both ways, because a valid claim can often be set off or traded against the preference exposure in settlement.
Mediation is likely. The District of Delaware makes extensive use of mediation in avoidance litigation, and many preference matters resolve there rather than through motion practice. A defense built on documents, meaning invoices, payment histories, and the terms of your commercial arrangement, is worth far more in that setting than a jurisdictional complaint.
The Defenses That Do the Work
Venue is rarely the answer. The substantive defenses usually are, and they are documentary.
Ordinary course of business under § 547(c)(2), measured against your own payment history with this customer. New value under § 547(c)(4), for goods or services shipped after the payments at issue. Contemporaneous exchange under § 547(c)(1). The requirement added in 2019 that the trustee plead reasonable due diligence, taking into account a party’s known or reasonably knowable affirmative defenses, under § 547(b). And the wrong payor problem, which arises more often than people expect in corporate groups where the entity that paid you is not the entity that owed you.
Every one of those depends on records you already have. The single most valuable thing you can do on receiving a demand or a complaint is preserve and assemble the account file before anyone starts negotiating.
Frequently Asked Questions
Can I get the case moved to my home state?
You can move to transfer venue under 28 U.S.C. § 1412 for the convenience of the parties or in the interest of justice, which is separate from the § 1409(b) argument. Success is uncommon in these cases, because the estate’s interest in administering many similar actions in one court weighs heavily. It is worth assessing, not worth counting on.
I never did business in Delaware. How can they sue me there?
Bankruptcy Rule 7004(d) permits nationwide service of process, so the analysis differs from ordinary diversity litigation. Lack of Delaware contacts is generally not a defense to an adversary proceeding connected to a properly venued case.
The amount is small. Is it cheaper to just pay?
Sometimes, and an honest lawyer will tell you when. But preference demands are frequently opening numbers, and a documented new value or ordinary course defense often reduces exposure substantially for less than the demand. Get the exposure assessed before paying it.
What if I ignore it?
A default judgment, which is enforceable and much harder to unwind than the underlying claim was to defend. Mass preference filings produce a large number of defaults every year.
Does it matter that the trust, not the debtor, sued me?
Not to the venue or timing analysis. Post-confirmation liquidating trusts and litigation trusts commonly prosecute these claims, frequently through contingency fee counsel, which tends to make them more persistent rather than less.
This article is general information and is not legal advice. Dollar thresholds under the Bankruptcy Code and title 28 are adjusted periodically, and case law on the venue limitation continues to develop. Jenny R. Kasen has appeared before the United States Bankruptcy Court for the District of Delaware for more than thirteen years.