Don't Let Preferential Payments Ruin Your Bankruptcy

During a bankruptcy, all of the creditors are expected to be treated equally. As a result, if there is a belief that one creditor is receiving preferential treatment, this might lead to these payments being seized from the creditor so they can be more equally distributed.

Preferential Payments

The issue of preferential payments most often arises when you have a family member who you owe money to. You then pay money to your family member only to discover that they are treated as a creditor under bankruptcy law. Then your family member might be forced to turn over the payments you made and would then be entitled to only a smaller portion of the debt you owe.

However, there are other situations, such as the paying off of a credit card, that could lead to this issue. For example, you may wish to pay off a credit card so you can then use it to make a purchase. However, during bankruptcy, you are usually not allowed to use a credit card to obtain more debt.

Beware of the Bankruptcy Window

The only payments that are relevant within the context of bankruptcy are those that are made within a specific window. Therefore, if you would like to make a payment and are considering filing for bankruptcy, you should either make the payment before the window and then wait until the payment will no longer fall within that timeframe or you should wait until several months after you have filed for bankruptcy.

Why Pro See Bankruptcy is Often a Bad idea

When making financial decisions in the midst of a bankruptcy, you should always consult with a bankruptcy law firm beforehand. In many cases, the financial decision you make could potentially lead to your bankruptcy being thrown out or converted to a different type of bankruptcy, such as Chapter 13. In other cases, you may still be allowed to file for bankruptcy, but you will have to go through more hassles and paperwork.

A bankruptcy law firm will increase the odds that you are able to successfully discharge your debts, with pro see bankruptcy filers sometimes having a much lower success rate. For example, you might not know if Chapter 7 bankruptcy is actually better for you or Chapter 13. If you do file for Chapter 7, the law firm will help you make sure that all your debts are discharged so you can have a fresh start.

Contact a law office near you to learn more.