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Ellen, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36714
Experience:  Bankruptcy Lawyer. Experienced.
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Owed money paid before filing

Resolved Question:

If I paid my mother money that I owed her a year and two month prior to file bankrupcy, do I have to put this in the documents?
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  Ellen replied 7 years ago.


Unfortunately any payment that you make to your mother before filing bankruptcy could be considered to be a "preference". Even though the debt is legitimate, it would typically be set aside by the bankruptcy trustee.

Let me explain.

A transfer of the debtor’s assets to a creditor that results in a creditor receiving more than the creditor would have in a Chapter 7 bankruptcy, is typically considered a “preference". A security interest is considered a transfer.

Bankruptcy Code §547 provides for the avoidance of preferential transfers within 90 days before the bankruptcy filing date for third parties. Transfers to insiders (including a relative) are subject to a longer avoidance reach back of one year.

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