Avoid Preferential Payments Before Bankruptcy

If you are considering filing bankruptcy, one of the things you want to avoid at all cost is making any kind of preferential debt payment. If you make payment to any of your creditors in an effort to keep them out of the bankruptcy proceedings—for instance, paying a specific credit card bill so you can retain that credit card.

Consequences of Preferential Payments

If you make any payments within a 90 period preceding a bankruptcy filing, there is a possibility the court will overturn those payments and reassign them as it sees fit. The same may hold true if you make car payments in order to avoid repossession when you know you are planning to file for bankruptcy. This doesn’t mean you shouldn’t make those payments, but you must be aware of the possibility the funds will be returned to the bankruptcy estate and redistributed by the bankruptcy trustee.

Preferential Payments on Unsecured Debts

In the case of unsecured debt such as credit cards, any preferential payments you make may be voided completely. Depending on your assets, the court may choose to distribute the funds only to your secured creditors such as your mortgage company and the lienholder of your car. This means any payments you choose to make prior to filing for bankruptcy may not be distributed to any preferential creditors in the same way.

Before you make any preferential debt payments you want to keep in mind that you will be required to pay up front for your filing fee. While your attorney may choose to add the attorney’s fees into the petition and accept payment as a priority creditor in the bankruptcy, you will need cash to cover the initial filing. Instead of making payments to some of your creditors, you can set the money aside for your bankruptcy filing. Do not exclude any of your debt from your petition including medical bills and back taxes.

Finding Answers to Legal Questions

A bankruptcy attorney is the best source of information regarding the bankruptcy law and how it might affect any preferential payments you have made or are thinking about making. Before you make any agreements with your creditors, talk to a bankruptcy lawyer. This will allow you to make the right decision regarding your rights and obligations to your creditors.