Defending Your Custody Agreement: Protecting Your Education Choices

Defending Your Custody Agreement: Protecting Your Education Choices

Understanding Bankruptcy Preferential Payments

by Daryl Young

A chapter 7 bankruptcy filing is about more than just getting out from under a lot of crippling debt. The bankruptcy codes were written with fairness in mind and that means being fair to both the debtor and the creditor. The rules about how much each creditor is paid must be followed and all chapter 7 filers need to understand how this rule can affect them before they even file their paperwork with the courts. To learn more about avoiding preferential payments, read on.

How and Why Creditors Get Paid in Bankruptcy

Most filers, understandably, care little about how or why creditors are paid. You may feel irritated, for example, with your credit card company because they refused to work with you in getting caught up on a debt. That is why the bankruptcy trustee decides how creditors get paid when there are funds to pay them. If you already know that there is a risk of losing property when you file, then you might understand that creditors are paid in a certain order of priority from the proceeds of property seized from the filer. When there is money to pay a creditor, the funds are distributed fairly across all creditors within a category. Unfortunately for filers, the trustee may look back at your financial transactions going back several months before you filed bankruptcy to identify preferential payments.

What Are Preferential Payments?

The rules say that payments should be made in a fair way. That means paying the minimum balance or regular loan payment on all debts. You must let the courts know about all payments made to creditors that total $600.00 and over in the past 90 days prior to filing. If you made a preferential payment to a friend or family member of that amount, the look-back period can be even longer. If the trustee determines that you paid a creditor more than the minimum owed at any time, they may "take back" the funds and distribute them evenly over all creditors.

Why Make Preferential Payment?

Filers may have good reasons for paying a creditor more. Some are embarrassed about filing and may not want to list a personal loan from a family member on the bankruptcy paperwork. Some may try to pay more to credit cards that carry a higher interest rate. In most cases, preferential payments are done for perfectly innocent reasons and that is why the bankruptcy courts don't punish filers as long as the transaction is listed.

If you know that you have made what might be interpreted as a preferential payment to a creditor before or after your filing, discuss it with your bankruptcy attorney.


About Me

Defending Your Custody Agreement: Protecting Your Education Choices

When my ex-husband decided to contest my choice to homeschool our children, I knew that I had to defend my right as the custodial parent. Our custody agreement gave me authority over educational decisions, but he still took me to court. I spent a lot of time working with an attorney to find out how best to handle it, and I did a lot of research on the laws as they applied. If you're trying to defend your educational choices amidst your divorce, this site may help. I've built it to share everything I learned and explain the process that I went through to secure my rights.