Avoid Doing This Before Filing Chapter 7 Bankruptcy in Rochester, MN

When you are thinking strongly about filing a Chapter 7 Bankruptcy in Rochester, MN, you will be tempted to do one thing you definitely should NOT do before filing the bankruptcy. You will be tempted to pay family and friends on debts you owe them. We understand this temptation. But if you pay family and friends money before you file bankruptcy, so you can avoid listing them as a creditor on the bankruptcy or just because you want them to get paid back even though others creditors are not getting paid any money, that may be considered a “preference” and the trustee may be able to avoid that preference.

What does this mean? Ok, say you paid mom back 1k 4 months before filing a Chapter 7 Bankruptcy. If you have paid a family member back $600.00 or more in the previous one year before filing a bankruptcy, that is considered a “preference” under the Bankruptcy Code. Think of a preference as you “preferred” one creditor over another. 

Assuming there are no defenses to the preference, the trustee can avoid this 1k payment to your mom. What does avoid mean? It means the trustee can force mom to pay it back into your bankruptcy estate. What happens with the money paid back into the estate? It gets paid to all creditors pro rata. So, in effect, the “preference” to one creditor gets clawed back and used to pay all creditors based on the size of their claim. 

Do you think family members like paying back money they were legally owed to a bankruptcy trustee? I can tell you with certainty they do not. Avoid paying all family and friends money owed to them prior to filing bankruptcy!

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When the time is right, or when you are ready, reach out to Minnesota’s LARGEST bankruptcy law firm at www.kainscott.com. You will be so happy you did!