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Preferences in Bankruptcy

What Is a Preference? Will It Have an Impact on Your Filing?

Preferences in BankruptcyOne of the most significant benefits of American bankruptcy law in the automatic stay, which goes into effect immediately and prohibits creditors from taking any action to collect a debt outside of the bankruptcy proceeding. The bankruptcy court, however, is concerned with more than where you’re headed. There’s also a “look back” period, where the court will review any payments or transfers of property you made to determine if they unfairly benefited certain creditors. Such payments or transfers are referred to as “preferences,” short for “preferential debt payments.”

What Constitutes a “Preference”?

Under bankruptcy law, certain payments made prior to the filing of a bankruptcy petition are considered improper preferences. Any transaction deemed to be a preference can be voided, and the creditor can be required to return the funds to the bankruptcy estate. The following payments typically are considered preferences:

  • Transfers made within 90 days of a bankruptcy filing—Payments in excess of $600 (in aggregate) to a specific creditor made within a 90-day window prior to the initiation of bankruptcy proceedings are preferential and can be voided. For that to happen, though, there are additional requirements. You must have been insolvent at the time of the transfer (your debts were greater than your assets), and the transfer must have resulted in the specific creditor receiving more than it would have recovered through the bankruptcy process.
  • Transfers to insiders—Different rules govern transfers to anyone deemed to be an"insider." Bankruptcy law defines insiders as "relatives, any partnership in which the debtor is a general partner, any general partner of the debtor, or any corporation in which the debtor is a director, officer or person in control." The dollar amount for preferences is the same for insiders as others ($600 in aggregate), but the look-back period is a full year. As with other preferences, the debtor must have been insolvent at the time of the payment, and the conveyance must have resulted in the creditor receiving more than it would have obtained in the bankruptcy.

Contact Attorney Howard N. Sobel

At the Law Offices of Howard N. Sobel, we provide comprehensive counsel to individuals throughout the state of New Jersey who seek to address financial challenges through a bankruptcy petition. Contact our office online or call us at 856-424-6400 to see if you qualify for a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.

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