What Are They? How Do They Affect Your Bankruptcy Filing?
When you file for protection in bankruptcy, an automatic stay immediately goes into effect, prohibiting creditors from contacting you or taking action to collect the debt outside the bankruptcy proceeding. The stay generally remains in place until your bankruptcy proceeding is finished. But the bankruptcy process is not just forward-looking. The bankruptcy trustee and the court also look back at your actions in the period leading up to your filing. One of the things they look for are what are known as “preferences.”
What Is a Preference in Bankruptcy?
A preference, or preferential debt payment, is the conveyance of property or transfer of funds to a specific creditor within a certain period of time prior to the filing of a bankruptcy petition. If the bankruptcy court concludes that such a payment is preferential, that transaction can be voided and the creditor will be required to return the payment so that it can become part of the bankruptcy estate.
- Transfers made within 90 days of a bankruptcy filing—The bankruptcy court has the power to void any payments in excess of $600 (in aggregate) to a specific creditor within a 90-day window prior to the initiation of bankruptcy proceedings. However, it also must be shown that you were insolvent at the time of the transfer (i.e., that your debts were greater than your assets) and that the transfer resulted in the specific creditor receiving more than they would have recovered in the bankruptcy process.
- Transfers to insiders—A different rule applies to transfers to persons considered to be “insiders.” For purposes of bankruptcy law, an insider includes “relatives, any partnership in which the debtor is a general partner, any general partner of the debtor, or any corporation in which the debtor is a director, officer or person in control.” The dollar amount for preferences is the same for insiders as others ($600 in aggregate), but the bankruptcy court can look back as far as one year. A transfer to an insider will be considered a preference only if the debtor was insolvent at the time of the payment and the conveyance resulted in the creditor receiving more than they would have obtained through the bankruptcy proceeding.
Contact Our Offices
At the Law Office of Andrew B. Finberg, LLC, we bring comprehensive bankruptcy counsel to individuals in Burlington, Camden, and Gloucester counties in New Jersey. To schedule an appointment, call our office at 856-988-9055 (toll-free at 866-721-7269), or contact us online.