What is a Preference and Why Does it Matter?

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What is a Preference and Why Does it Matter?

Preferences are certain transfers of property or payments of money to creditors within certain time periods prior to filing bankruptcy. Preferences are transfers to or for the benefit of a creditor on account of a pre-existing debt.

In transfers involving the debtor’s friends or family, a transfer is a preference if it is made within a year of the bankruptcy filing. In transfers involving ordinary creditors, a transfer is a preference when it is made within ninety days prior to the filing of a bankruptcy.

The significance of a preferential transfer is that when it the aggregate amount of the transfer is more than $600, a bankruptcy trustee can avoid it. Avoiding the transfer enables the trustee to demand the return of the transfer from the creditor.

While most debtors do not care whether the trustee demands money back from, say, American Express or Visa, having the trustee demand the money from them or their loved ones is a very different story.

It is important then to keep track of preferences and bring them to your attorney’s attention so that the filing of your Chapter 7 Bankruptcy can be properly timed.

2011-01-08T19:04:03+00:00
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