Avoiding Preference Actions in Bankruptcy

The Potential Consequences of Selectively Paying Off Creditors before Bankruptcy

Avoiding Preference Actions in BankruptcyIf you’re struggling to make ends meet—you’ve lost your job because of the pandemic, you’ve racked up medical bills because of an injury or illness, or you’ve lost just about everything in a divorce—you may have decided that your best way forward is with a personal bankruptcy filing. That’s exactly what the bankruptcy laws are there for—so that you can get a fresh start when life throws you a curve.

You may have turned to friends or family as you tried to keep things together, borrowing money to meet your needs. You don’t want them to have to accept pennies on the dollar in a bankruptcy proceeding, so you may be tempted to pay them off before you file for protection. Unfortunately, that may only make things worse. Your family and friends will be considered creditors, just like anyone else to whom you owe money. The bankruptcy laws generally prohibit treating similarly situated creditors differently.

What Will Happen If I Pay Off Friends and Family before I File for Bankruptcy?

Under the bankruptcy laws, the bankruptcy court has the right to look at all payments you have made to anyone prior to the bankruptcy. Any payments that appear to give priority to one creditor over similarly situated creditors may be considered a “preference” and may have to be returned by the creditor.

For general creditors, the “look back” period is 90 days. If you paid more than $600 (total) to any creditor during that period, it may be considered a preference. If the creditor is a family member, the look back period may extend to a full year. If a preferential payment is found, the bankruptcy court can file legal action to force the return of the payment to the bankruptcy estate.

Contact an Experienced Rockwall, TX Bankruptcy Attorney

At the Law Offices of Carrie Weir, all potential clients are entitled to a free initial consultation. To arrange an appointment, contact my office online or call 972-772-3083. I handle Texas personal bankruptcy filings in Kaufman County, Rockwall County, Collin County, Dallas County, Hunt County and the surrounding counties.

Call Rockwall bankruptcy lawyer Carrie Weir at 972-772-3083 or fill out the contact from below for a free, confidential consultation to discuss your options.

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