What is a preference transfer in Bankruptcy?

Saturday , 5, October 2013 Leave a comment

Bankruptcy Lawyer in Brick NJ.

What is a preference transfer in Bankruptcy?  The Bankruptcy Code allows debtors to keep assets with no equity or up to a fixed dollar amount, through a process of exemptions.  These exemptions are tools provided by the Bankruptcy Code to protect your assets and truly give you a fresh start. In many case we see people transfer assets to friends and family as the creditors begin to circle; trying to hide or protect their assets from the creditors.

The Bankruptcy Code makes the results of transferring an asset very clear. “Transfers made with the intent to hinder defraud or delay creditors,” within one year of filing a bankruptcy is a basis to deny or revoke the discharge of a debtor.  In addition, transfers made in up to 6-years prior to filing the bankruptcy petition, regardless of the intent of the Debtor, may be avoided by a creditor or bankruptcy trustee, and can be liquidated to benefit creditors.

Bankruptcy can be quite mysterious without counsel and therefore the things people do in the normal course of life that are not an issue, can later become issues when filing for bankruptcy.  There may be legal defenses, in addition to practical considerations, but a gift to a family member of $5,000 five years ago could very well be an issue in today’s bankruptcy filing.

The most extreme result of transferring an asset can result in the Debtor’s discharge being denied; Thus every debt included in the bankruptcy is ruled non-dischargeable in the case, and any future cases. Also,  the person you transfer the asset to may very well be sued.  If the Trustee is successful, the asset is returned to the Estate for the benefit of the creditors.

Payments to creditors on legitimate debts may also cause issues in a bankruptcy case. Payments within 90 days to any creditor, or 1 year to “Insiders” (think family, friends and business associates), called preferences in bankruptcy jargon, may be avoided and used to pay all creditors.  Thus, using your Tax Refund to pay off the $1,000 loan from your friend, right before filing bankruptcy is not a good bankruptcy move.

Normally a debtor can exempt and keep the same $1,000.00 as part of a bankruptcy proceeding and pay the friend after the case has completed.  However, if the same amount is voluntary transferred (vs. garnishment or other creditor action), and then recovered by the Trustee, the Debtor is not allowed an exemption in the recovered asset.
Involuntary transfers (again think garnishment of wages) made within the 90 days may also be recovered, quite possibly to the benefit of the debtor.  In certain circumstances, a bankruptcy will not only force the creditor to stop garnishment, but allow the debtor to recover and keep the amount taken by the creditor.

The New Jersey personal bankruptcy attorneys at Riviere Cresci & Singer LLC can answer any questions you may have concerning your debt, or any general bankruptcy questions. If you live in New Jersey, including Belmar, Bradley Beach, Marlboro and Lakewood, call us for a free consultation to find out how we can help you.

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