Preferential Transfers in Bankruptcy

It is tempting for many during tax season to use their tax refund to repay personal loans and other debts, especially those owed to family members. However, if you are considering filing a chapter 7 or chapter 13 bankruptcy, this is usually not a good idea. Such payoffs shortly before filing may be considered a preferential transfer. If repayment of a loan or debt close to the time of filing is found to be a preferential transfer, the bankruptcy trustee is able to get the money back that was paid to the creditor and redistribute it for the benefit of all creditors. Whether a debt repayment shortly before filing bankruptcy is a preferential transfer depends on several factors including, but not limited to: (1) whether the repayment was over $600 in aggregate; (2) whether it was made during the 90-day period prior to the bankruptcy filing while the debtor was insolvent (Per current bankruptcy law, the presumption exists that a debtor is insolvent within the 90 days prior to filing bankruptcy.); and whether the repayment results in the creditor that benefited from the repayment receiving more than it would have under Chapter 7 bankruptcy. It should also be noted that preferential transfers to creditors who are insiders can be avoided if those transfers occurred within one year of filing bankruptcy. Insiders include, but are not limited to, relatives and business partners. As is the case with preferential transfers made to non-insiders, those made to insiders can be avoided and the bankruptcy trustee can seek to get the money back for the benefit of all creditors. So if you are preparing to file or considering bankruptcy, avoid the temptation to pay back particular creditors, including relatives and business partners. If you are considering bankruptcy as an option call Douglas County Bankruptcy Lawyers today for a free consultation.