What is a Preference Payment?
A preference payment occurs when a debtor pays a creditor a sum of $600.00 or more prior to the bankruptcy filing date. If the payment is over this amount, then the trustee can proceed to void the payment and collect the funds from the creditor. If the creditor is a relative (father, son, brother, uncle, etc.) then the "look back" period is one year. The one year is retroactive from the filing date of the bankruptcy petition back in time. If the creditor is not related then the "look back" period is 90 days.
For example, you pay your mother $1,500.00 within six months of the filing date of your bankruptcy. This is a "preference" and the trustee pursuant to bankruptcy code 547 can void the payment and recover the $1,500 for your creditors. Relatives are called "insiders" under Section 547 of the Bankruptcy Code. If the payment was made to a creditor unrelated to you, then no preference was made. The reason is that only payments within 90 days are considered preferences.
There are some defenses to such a transfer and are contained in section 547. For example, debts paid in the "ordinary course of business or financial affairs of the debtor and the transferee are not voidable by the trustee.
It is therefore extremely important that you advise your bankruptcy attorney about any payments on debts over $599.00. Your bankruptcy attorney will likely ask you that questions during the intake interview.
Should you have any questions in regards to this topic, please feel free to email or call me.
/s/ Mark E. Lewis, Esq.