The Consequences of Selectively Paying Creditors Immediately before Filing
When you’re initially facing financial challenges, it’s common to turn to friends and family for assistance. When it becomes clear that your problems cannot be resolved through any means other than a personal bankruptcy filing, you may be inclined to give priority to those friends and family who tried to help you out, paying them back before you file, so that they don’t have to settle for pennies on the dollar. Depending on when you do that, your efforts may all be for naught.
Preferences in Bankruptcy
Though you may view friends and family different from other creditors, the bankruptcy laws do not. Furthermore, when you file for personal protection under Chapter 7 or Chapter 13, the bankruptcy court will look at more than your debts and assets at the time of filing. The bankruptcy laws allow the court to “look back” at any payments you have made to creditors over a certain period of time:
- For general creditors, the “look back” period is 90 days from the date of your bankruptcy filing. If you have made aggregate payments totaling more than $600 to any creditor, the excess amount may have to be returned to become part of the bankruptcy estate. The bankruptcy laws give the court the right to sue for the recovery of those excess payments.
- For creditors who are considered to be “insiders,” or favored by debtors, the look back period can be as long as one year. Insiders typically include all family members, but may also include friends or business associates.
It’s also important to understand that a payment will still be considered preferential, even if your intent was not to defraud other creditors. However, if the court finds an intent to commit fraud, you may face criminal, as well as civil, action.
Contact Attorney Howard N. Sobel
At the office of Howard N. Sobel, we provide personal bankruptcy counsel to men and women throughout the state of New Jersey. Contact our office online or call us at 856-424-6400 to set up a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.
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