Improperly Paying Creditors Prior to Filing Bankruptcy
The bankruptcy system is designed to ensure the full disclosure of what are called “preferential payments”. Preferential payments are payments to any one creditor exceeding $600 in the 90 days before you filed bankruptcy. For relatives and business partners, the look- back period is longer.
The concept of the “preferential payment” is that a person “on the eve” of bankruptcy should no longer be free to chose which of their creditors to repay. Otherwise, people would pay their family and business partners to the detriment of the other creditors that didn’t get paid.
To “right the wrong”, the Code authorizes the Chapter 7 trustee to demand that the creditor cough-up the money and put it back on the table to be distributed fairly among all the creditors.
Many people – often those who are not represented by experienced bankruptcy attorneys, fall into a trap by failing to disclose a preferential payment or understand its different consequences in Chapter 7 and in Chapter 13. Part of your attorney’s job is to keep you out of trouble by identifying preferential payments and understanding how the Chapter 7 trustee and Chapter 13 trustee might react.
