When considering bankruptcy, it’s important to understand the different aspects of this process. In general, one thing you may not have considered is how your actions in the months leading up to your filing can impact the outcome of your case. As such, it’s imperative to familiarize yourself with preferential payments. The following blog explores what you should know about these matters, including why it’s in your best interest to avoid these payments. You’ll also learn the importance of working with Franklin County bankruptcy lawyers to help you through these difficult times if you are considering filing.
What Are Preferential Payments and Why Should I Avoid Them?
One of the most important aspects of bankruptcy for the filer and creditors alike is fairness. As such, one of the most important protections a debtor will receive during bankruptcy is the automatic stay. This is a right that someone can gain once they declare bankruptcy, which stops all collection efforts against them, including lawsuits, foreclosures, contact from creditors, and wage garnishment.
However, creditors also have rights in this process, especially in regards to preferential payments. Essentially, these are payments made before or during bankruptcy that result in the filer giving a financial advantage to one creditor over the other. Generally, any time someone makes a payment when they are in insolvency for a debt that is included in the filing, and the creditor receives more money from this payment than they would have during bankruptcy, it can be considered preferential, as it gives this creditor an advantage over others.
Typically, the courts will examine the past year of your finances. Payments made to traditional creditors within 90 days of your filing will be considered preferential, while payments made to family, friends, or business partners within one year of filing are considered preferential.
What Happens if I’ve Already Made Payments?
In the event you’ve already made payments to a creditor prior to filing for bankruptcy, it’s critical to understand what you can expect. In general, the trustee assigned to your case will contact the creditor to “claw back” or recover the funds they received. If the creditor does not cooperate, the trustee can file a lawsuit to recover the funds. Once they have the funds back, they will be included in the bankruptcy estate and used to repay creditors based on priority.
As you can see, bankruptcy can be an incredibly complicated and difficult time. That is why it’s in your best interest to connect with an experienced attorney with Cousino & Weinzimmer LLC to explore your options. Our team will help guide you through the bankruptcy process so you can feel confident in the decisions you make for your financial future. When you need assistance, do not hesitate to contact our firm today.
