In the case of United States ex rel. Willoughby, Trustee, et al. v. Howard et al., 1937, the Supreme Court was asked to decide whether a trustee in bankruptcy could recover payments made by an insolvent debtor prior to declaring bankruptcy that were preferential under state law but not under federal law. The court held that since Congress had enacted a comprehensive scheme for dealing with bankruptcies and insolvencies through the Bankruptcy Act of 1898 (as amended), it preempted any inconsistent state laws on this issue. The debtor in question had transferred property as security for debts owed to certain creditors within four months before filing for bankruptcy - these transfers were deemed preferential under Alabama's insolvency laws because they gave those creditors an advantage over others. However, such transfers did not qualify as preferences under federal law unless they allowed the creditor to obtain more than their proportionate share of assets or if they enabled the creditor to receive payment on a previously unsecured debt. Therefore, even though these transactions would have been voidable under Alabama's insolvency statutes, they could not be set aside by a trustee in bankruptcy because there was no corresponding provision allowing this action in federal legislation governing bankruptcies.

In the dissenting opinion for United States ex rel. Willoughby, Trustee, et al. v. Howard et al., Justice Cardozo disagreed with the majority's decision to deny recovery of funds from a bankrupt estate due to an alleged fraudulent transfer by the debtor prior to bankruptcy proceedings. He argued that under Section 67e of the Bankruptcy Act, which allows trustees in bankruptcy cases to recover any property transferred or concealed by a debtor within four months before filing for bankruptcy if it can be proven that such action was done with intent to hinder creditors, there should have been enough evidence presented at trial showing this intent on part of the debtor and thus warranting recovery of funds by trustee Willoughby on behalf of all creditors involved in this case.