Which Creditors Can I Pay Before Bankruptcy?
Maryland debtors should be cautious prior to filingBy Doug Mentes, Esq. | Last updated on January 10, 2023
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- Trustee Can Require Preferential Transfers Be Returned
- Insider Transfers Are Subject to 1-Year Disclosure Period
- Most Preference Cases Settle
Trustee Can Require Preferential Transfers Be ReturnedEisler gives an example to show what may occur when a debtor is caught making a preferential transfer: “Again, the reason for this disclosure is it’s not considered fair that a debtor paid, for example, Bank of America $610, and nothing to American Express. So, in the name of fairness, the bankruptcy trustee can sue Bank of America for the return of that $610, then take that money and divide it on a pro-rated basis among all creditors in accordance with priority for payment in the bankruptcy code.” There are several defenses available to the debtor, but most apply for debtors with primarily non-consumer debts. These include:
- Contemporaneous exchange defense, where delivery of goods is conditioned upon payment made at the same time.
- New value defense, where a merchant provided new goods after receipt of payment. The cost of the new goods can offset the amount of preference payment.
Insider Transfers Are Subject to 1-Year Disclosure PeriodRequired disclosure of transfers of $600 or more is extended to one full year prior to bankruptcy filing for transfers to “insiders” of the debtor. Insiders are relatives or close business associates. Several other persons or entities are defined as insiders under the bankruptcy code.
Most Preference Cases SettleAmong bankruptcy practitioners, Eisler says, “we joke because almost every preference case settles. The facts usually are not in dispute; it’s not like the car accident case where you say, ‘Was the light red, yellow or green?’ Here, preferences deal with dates and payments of money. There generally isn’t that much that’s factually in dispute, except for those affirmative defenses.” Debtors dealing with issues that may complicate their bankruptcy filing, like preferential transfers, will need to spend time planning the best approach to filing. Reaching out to an experienced Maryland bankruptcy attorney should be step one. For general information on Chapter 13 bankruptcy, bankruptcy court, bankruptcy petitions, and bankruptcy exemptions, see our bankruptcy overview.
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