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Bankruptcy And Preferential Transfers

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I keep my car if I file bankruptcy?”


For those considering filing for bankruptcy it is quite common to consider which creditors you should continue to pay. After all, if you feel sure a filing is imminent, it may not make sense to continue to throw money at certain bills, such as credit cards or medical debt which would be wiped out in a bankruptcy anyway. Other debt, such as that associated with utilities, phone providers, home loans or cars may receive different treatment given your continuing need for the goods or services.


Hand with cash Charlotte Bankruptcy Lawyer Mecklenburg Debt AttorneyWhat can be an especially confusing category is how to handle debts owed to family members or friends. For example, what should you do if you owe your parents $10,000 for advancing you money to use as a down payment on your house or a few thousand to your good friend to pay sudden medical bills or even money advanced by your boss to cope with mounting debt? How do you handle these payments? Do you pay prior to filing bankruptcy to ensure these people are taken care of or do you lump them into the bankruptcy with all the other creditors?


The first important point to note is that while bankruptcy exists to give debtors a chance to start fresh, wiping away debt that they can no longer afford to repay, it does so in the fairest way possible to the creditors. The goal of the bankruptcy process is to treat all creditors fairly, regardless of your personal relationships.


What is a preferential transfer?


So what’s wrong with paying off debts to family and friends prior to filing bankruptcy? The risk is that your bankruptcy trustee deems these payments preferential transfers. If that happens, then the trustee could potentially deem the transfer invalid and get the money back, using it to the benefit of your other creditors.


So how do you know if a payment could be called a preferential transfer? Payments are considered preferential if they are made to ordinary creditors and are over $600 in total, made within 90 days of your filing for bankruptcy and resulted in a creditor receiving more money than it would have been entitled in the bankruptcy.


The rules get even tougher when discussing payments to “insiders”. So what is an insider? Insiders are those people close to you, such as relatives, friends, business partners or companies that are controlled by yourself or others close to you. In the case of insiders, a bankruptcy trustee can go back one year prior to filing for bankruptcy and look for payments that may be considered preferential.


In short, while most people would agree there are some debts they care about more and, consequently, some creditors they would rather see repaid above others, the court system does not allow you to pick and choose. If you repay money to friends or family members at the expense of other legitimate creditors, the bankruptcy trustee may seek to recover this money and use it to pay other debts.


If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.



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