Example of a Preference in Bankruptcy
A preference is essentially a payment that benefits one creditor over others. This commonly occurs with payments to unsecured creditors of $600 or more in the 90 days prior to filing or to a relative of $600 or more in the 1 year prior to filing. The trustee in your chapter 7 bankruptcy will want the funds received from this preference, to distribute to all of your creditors.
For an example:
Let’s say in the month prior to filing your chapter 7 bankruptcy you paid your mom $800 dollars. You paid her back because she lent you money. This will create a preference, because mom was paid more than $600 within the year prior to filing. If you do not want mom involved with your bankruptcy, most chapter 7 trustees will work with you to pay the $800 to the bankruptcy estate. Otherwise, you could have mom pay the $800 she received to the bankruptcy estate.
Another example:
Let’s say you paid off one of your credit cards prior to filing, because you didn’t want them listed in the case. Therefore, you paid $1,000 to this creditor. Paying this one creditor more than the $600 threshold in the 90 days prior to filing created the preference. In this scenario the trustee will go to the creditor for the $1,000 received in the 90 days prior to filing. The trustee will then distribute the funds to all of your creditors.
Please speak to an attorney before paying your unsecured creditors back prior to filing bankruptcy. Your attorney can give you proper advice and knowledge regarding preference issues.
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