The Treatment of Recent Payments in a Bankruptcy Proceeding

What is a Preference? How Will It Affect Your Bankruptcy Filing?

Sometimes you have a pretty clear sense that you’re heading toward bankruptcy, and sometimes you don’t. You may be working hard to get all your vendors paid but unable to get over the hump without the protection of American bankruptcy laws.

When you file for bankruptcy, the court and trustee will look carefully not only at your assets but also any disbursements made in the months prior to your petition. As a general rule, payments were made in the ordinary course of business and regular bill payments are fine. However, any payment the court considers to be a preferential debt payment (also known as a “preference”) may need to be returned and put into the bankruptcy estate.

What Constitutes a Preference?

A preference is the conveyance of any property, including cash, to a specific creditor within a certain period of time immediately preceding the filing of a bankruptcy petition:

• For payments made less than 90 days before bankruptcy filing, the court can void aggregate payments totaling $600 or more to any creditor, provided that you were insolvent at the time of the payment(s) and the creditor received more than it would have through the bankruptcy proceeding.
• Payments made to an insider—defined in the bankruptcy laws as “relatives, any partnership in which the debtor is a general partner, any general of the debtor, or any corporation in which the debtor is a director, officer or person in control”— also may be voided if the aggregate exceeds $600 to any one creditor, the debtor is insolvent, and the creditor receives more than they would have in bankruptcy. The look-back period, however, is extended to one year for insiders.

Contact Attorney Howard N. Sobel

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

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