As an Austin bankruptcy attorney I often see cases where payments have been made recently to certain creditors but not all. A “squeaky wheel” collector may have persuaded you to send a check, or you may have repaid a debt to your cousin, but, unless defined amounts of time have passed, these will cause you problems in a Chapter 7 filing. The Trustee may in fact be able to recapture these funds from those you repaid. There will be no penalty to you, but the recipients of the money probably won’t look very kindly on such a circumstance.
Here are some guidelines to consider for payments against unsecured debt. If you repaid a debt to someone considered an “insider” – essentially a relative – in excess of $600 within one year of filing, then that payment will be recognized as a preference and is subject to recapture. That doesn’t mean you can’t pay rent to or buy goods and services from that same relative during the one-year time frame, but if your funds are clearly repaying a pre-existing debt, you’ve created a preferential payment. These actions are not illegal, unless you can be shown to be intentionally and fraudulently disposing of funds that ought to be available equitably to all your creditors. You can, however, within the year borrow money from a relative to pay off an earmarked debt, e.g., a credit card you absolutely must have for business travel, in which case you’re essentially substituting one creditor for another. You can pay your helpful relative after your chapter 7 has concluded, if you wish.
If a creditor is not an insider, the relevant time frame is only 90 days. But the dollar amount mentioned in your filing is still $600. However, it’s not likely in our jurisdiction that a Trustee will pursue recapture of a debt unless it’s considerably greater than that. As your Austin bankruptcy lawyer, I will need to review your specific situation to advise you on whether now is the time to file or whether you should wait beyond these preferential periods to avoid the Trustee’s chasing around creditors you were trying in good faith to make whole.
The bankruptcy code presumes you were insolvent during the 90 days prior to filing. If you can prove you were not insolvent during the time when you made what would appear to be a preferential payment, then you may be able to get an exception. But, these exceptions aren’t easy to achieve unless you had some obviously unforeseen calamity that brought you to my office on short notice.
The bankruptcy code is designed to accomplish social good by giving people a fresh start after financial setbacks, and it’s also designed around a general notion of fairness. All creditors affected by your filing deserve to be treated equitably, and the guidelines on preferences are intended to accomplish just that