What is a “Preferential Transfer” in Bankruptcy Law?

Bankruptcy law has all kinds of ins and outs that must be mastered by anyone who chooses to practice this complex kind of law. In fact, there are many “traps for the unwary” all throughout the bankruptcy code that, if triggered, can make a filer’s bankruptcy much more complicated and difficult than it needs to be. The key to having a smooth and successful bankruptcy is securing a diligent and experienced bankruptcy law attorney to help you throughout the way.

money-in-hand-1037536-mThis week’s topic is on “preferential transfers.” Before getting into the specific topic of preferential transfers, a little background is necessary to more fully understand the area of law. In Chapter 7 and 13 bankruptcies, the trustee of the bankruptcy proceeding gathers up all the filer’s assets and does their best to pay back the unsecured debt holders. The law grants bankruptcy trustees certain powers to effectuate this goal, one of which is the cancelation of a preferential transfer.

A preferential transfer is a certain kind of payment or transfer made within a certain amount of time before a person files for bankruptcy. The idea is that it is not fair that one creditor gets paid, presumably in full, while the others all need to divide up what is left. Under certain circumstances, therefore, a trustee can reverse a preferential transfer, essentially getting the money back from the transferee.

What Makes a Transfer “Preferential”?

A transfer must meet several criteria before it is considered “preferential” and eligible for reversal by a trustee:

  • It must have been made within 90 days of the file date of the bankruptcy;
  • It must be for more than $600;
  • The payment must be for debt that was previously owed, rather than incurred at the time of payment;
  • The payment must be more than the creditor would be entitled to under a Chapter 7 bankruptcy plan; and
  • At the time the payment was made, the filer must have been insolvent, or with more debts than assets.

If all of the above criteria are met, the bankruptcy trustee may be able to recall that payment and increase the amount of the bankruptcy estate by that much money.

However, it is worth noting that there are several defenses to a preferential transfer, so before you declare for bankruptcy be sure to consult with a dedicated bankruptcy law attorney.

Are You Considering Filing for a Kentucky Bankruptcy?

If you are considering filing for bankruptcy in the State of Kentucky, you should first consult with an attorney about your decision to do so. The labyrinth of bankruptcy laws in the United States is incredibly complex and is not easily navigated by the uninitiated. To learn more about how the bankruptcy laws may be able to help you get out from underneath the crippling debt you are currently living with, call 866-366-3328 to schedule a free initial consultation with an attorney today.

More Blog Posts:

Bouncing Back After Bankruptcy in Kentucky, Kentucky Bankruptcy Lawyers Blog, published July 16, 2014.

Bouncing Back After Bankruptcy: Rebuilding Your Credit Score, Kentucky Bankruptcy Lawyers Blog, published August 24, 2014.

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