What is the Rule on Preferential Transfers

As you consider filing bankruptcy, have you heard that there is a 90 day rule on payments made to creditors? There's often confusion of when the rule applies and when it doesn't. First understand that the 90 day rule applies to payments made to creditors counting back from the day you file your case. All payments are considered, however those payments that are most often implicated are payments made to unsecured creditors (creditors that don't have a lien or deed of trust). What is a "Preferential Transfer"? A "Preference" is a transfer (or payment) of an asset of the debtor that is (a) made because of a debt already owed, (b) within 90 days prior to filing the case, (c) at a time the debtor was insolvent (presume insolvency in the 90 day period), and (d) the transfer or payment allowed that specific creditor to get more from the Debtor than it would get in a Chapter 7 bankruptcy case. Every one of the tests above must be met. If they are all met, then the Chapter 7 Trustee can recover from the recipient of the transfer or payment all of the transfer or payment. It matters not what the creditor knew, this is essentially a strict liability rule. There are a few defenses to the claim by the Trustee, which include: (a) the transfer was made in the ordinary course of business of the Debtor; (b) the payment was made at the same time as an exchange for services or goods; (c) the creditor later gave new value or new consideration to the Debtor. The exceptions are pretty complex and often costly to prove. If you get a letter from a Chapter 7 Trustee demanding repayment of money you've received, be sure to contact an experienced bankruptcy attorney to evaluate the facts and help you determine your options. Contact Knoxville – Sevierville Bankruptcy Attorney Dan Scott If you are considering bankruptcy, or have gotten a demand from a Chapter 7 Trustee, contact us at 865-246-1050. We offer a free consultation so that you don't have to make decisions without understanding your options. If you found this helpful, you may also want to read: How long does the bankruptcy process take? What is a bankruptcy discharge?

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