Preferential payments to creditors.

When you are preparing to file a Chapter 7 bankruptcy, your attorney will ask you if you paid any unsecured creditor more than $600.00 in the 90 days immediately preceding the filing or any family members any money in the last few years. These are considered preferential payments, that is you preferred to pay to debt over another. This is not always your fault. Often a creditor will tell you that “if you don’t make a payment today” the creditor will file an action in Court or attach your wages tomorrow. If you made that payment and then filed a bankruptcy within 90 days, that is a preferential payment. On the other hand if you pay any amount of money to a family member within 1 year of filing a bankruptcy, that is a preferential payment. In any case, you can not decide who gets paid and who does not. The payment, in either case, would be paid back to the Trustee for disbursement as required by the law.

If the preference was to a company, the Trustee could force the money to be repaid to him and it would than be redistributed a little to each creditor instead all to a few creditors. This repayment also occur if you had a bank account or wages attached within the 90 days before filing the bankruptcy. If the payment was to a family member, the Trustee could force a repayment of the money, but in this case either the family member or you could be forced to pay the amount back.

The situation with money paid to a family member is usually related to money you borrowed from family members, or at least you say you did borrow from them. A bankruptcy Trustee going after your parents, or inlaws, could be a large embarrassment and could be avoided by you agreeing to pay the money to the Trustee. What should have happened if there were a loan made to family members, is that no payment should have been made but the family member should have been listed as an unsecured creditor. In this regard, the rule in any bankruptcy is that you can voluntarily pay any creditor that you want to after the discharge.

In business cases, the creditor being paid operates the same way as individual cases. Rather than payments made to family members, in business cases the Trustee looks for payments made to insiders. Insiders would be officers, directors or employees of the company and the Trustee could go after them for reimbursement. Again, the insider should have not been paid, but listed as an unsecured creditor in the original filing.



Ronald R. Stanley, Esq. has assisted individuals file Chapter 7 and 13 Bankruptcy for over 40 years. He is a member of the bar in Ohio (1974), Northern Ohio Federal District Court (1974) and 6th Circuit Federal Appeals Court (1977). 3637 Medina Road #5 in Medina, Ohio 44256, 330-952-1415 Phone, [email protected] email, website