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Be Aware of Problems with Preferential Payments in Chapter 7!

Posted by Laurie Blanton | Jun 29, 2021

When you file a bankruptcy case, some things you did prior to the filing can cause problems.  One such thing is preferential payment.  A preferential payment or transfer occurs when a debtor pays one or more creditors while not paying other creditors.  This is preferring one creditor over another. The preferential payment in a non-business case must have been $600.00 or more to be considered a preference.  In the eyes of the court, this results in those creditors getting more than the other creditors because if those funds used to pay them, were turned over to the bankruptcy trustee, then the funds would be split amongst all the creditors.  The lookback time for these preference payments is different for regular creditors and what is called an insider creditor, which is a friend or family member.  The lookback for regular creditors is only 90 days, while the lookback for insiders is one year. 

Not every payment over $600 in the respective time period is a preference payment.  In order to be a preference payment, there are a few other requirements.  First the debtor must have been insolvent at the time of the payment and the payment must have been on an antecedent debt, or one that was owed prior to the payment.  Additionally, the payment must have been made during the relevant time period prior to the filing of the bankruptcy, ninety days for regular creditors or one year for insiders.  Lastly, the payment must have resulted in the creditor receiving more than it would have received had the payment not been before the bankruptcy filing but instead paid through the bankruptcy proceeding.

So, what happens if you made a preferential payment during the lookback period?  The trustee can go to the creditor and recover the amount of the preference payment.  If this is a regular creditor like a bank or credit card, you probably wouldn't care, but if you made a preference payment to a friend or family member, you may not want the trustee going after your friend or family member to recover the preferential payment. 

You must tell your bankruptcy attorney about all payments made to any creditors before filing bankruptcy.  If you fail to tell your attorney, your attorney can not properly advise you and you may be surprised with unexpected issues in your bankruptcy case.  The attorneys at Holland Law Group will advise you of any preference payment problems and help you determine what the best course of action for your circumstances.  All cases are different and if you are considering a bankruptcy, you need a knowledgeable attorney to get you the best result. Our goal at the Holland Law Group is to get you the best fresh start possible.

About the Author

Laurie Blanton

In 2004 Laurie graduated cum laude from the University of South Florida with a Bachelors of Arts in Criminal Justice. She continued her education receing her Juris Doctorate at the Washburn University School of Law where she graduated with honors and earned awards for the best written work in bot...

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