List Of The Types Of Transfers That May Be Preferential In Bankruptcy

List Of The Types Of Transfers That May Be Preferential In Bankruptcy

A bankruptcy debtor may “prefer” a creditor before filing his or her bankruptcy case by making some form of payment to a creditor for a past, unpaid debt. These preferential payments, or “preferences,” as defined by § 547 of Title 11, also known as the Bankruptcy Code, may present problems for a debtor in a bankruptcy case, thus requiring the involvement and assistance of an experienced bankruptcy attorney.

Bankruptcy trustees may recover payments to creditors that are considered a “preference” – any payment made by a bankruptcy debtor within 90 days of filing bankruptcy for a previously incurred debt to a creditor who is not defined as an insider, that allows the creditor to receive more than it would have from the bankruptcy case.

This 90-day window is extended to one year for payments made to “insiders” – family members or parties associated with the debtor through a corporate entity like a corporation or limited liability company (LLC). Federal bankruptcy law does not presume that a debtor is insolvent when he or she makes insider payments. Individuals considering bankruptcy as a fresh start must know and consider that any debt payment to an insider made within a year of filing bankruptcy may be considered a preference.

Thus, the payment’s proximity in time to the filing of the bankruptcy case is dispositive of whether a payment to a creditor for a debt is a preference. Payments to a secured creditor are not preferences because a secured creditor does not receive more than it would have in a bankruptcy case.

The following may be payments considered to be preferences.

  1. A payment to a friend for a personal loan. This payment must be made within 90 days of filing bankruptcy for a previously incurred debt to a creditor who is not defined as an insider, which allows the creditor to receive more than it would have from the bankruptcy case.
  2. A payment to a financial institution for an unsecured loan. This payment must be made within 90 days of filing bankruptcy for a previously incurred debt to a creditor who is not defined as an insider, which allows the creditor to receive more than it would have from the bankruptcy case.
  3. A payment made to a family member, considered an insider, made within one year of filing bankruptcy for a previously incurred debt, that allows the insider to receive more than it would have from the bankruptcy case.
  4. A payment made to a party associated with the debtor through a corporate entity such as a corporation or limited liability company (LLC), considered an insider, made within one year of filing bankruptcy for a previously incurred debt, that allows the insider to receive more than it would have from the bankruptcy case.

Payments made during the preference period may not be recovered by a bankruptcy trustee if the debt was “incurred in the ordinary course of business or financial affairs of the debtor and the transferee,” and the money was paid as customary in the past, or paid according to ordinary business terms.

For example, if a person goes to the dentist for an annual checkup, receives and pays an invoice from the dentist, and seventy-five days later files bankruptcy, the bankruptcy trustee may not recover the money back from the dentist since the transaction was made and paid as it normally would between the debtor and the dentist.

The involvement and assistance of experienced bankruptcy counsel may be necessary to avoid making preferential payments. With a team of exceptional lawyers and indispensable staff, Theron Morrison has assisted thousands of Utah residents to solve their financial problems by helping them file a Chapter 7 or Chapter 13 bankruptcy case. The Morrison Law Group offers debt relief services related to chapter 7 and chapter 13 bankruptcy, workouts, delinquent taxes, loan modifications, short sales, student loans, and defending the residents, consumers, and taxpayers of Utah against illegal collection. Contact the Morrison Law Group today at 801-456-9933 to consult with an experienced bankruptcy and debt solution attorney.

Theron Morrison

Theron Morrison

Utah’s top bankruptcy and consumer protection attorney.

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