Bankruptcy involves many detailed issues. All of these issues are often connected and must be considered when considering filing a bankruptcy petition for protections from creditors with the Federal Bankruptcy Court. One of the basic issues that the bankruptcy laws and rules attempt to require is one of fairness to all creditors. This article seeks to explain the questions and solutions that these laws and rules require when dealing with unequal treatment of similar creditors under preferential transfers. And as always these are the questions or issues that your Montgomery bankruptcy attorney or Selma bankruptcy attorney at The Sellers Law Firm is prepared to respond to or answer when considering a Chapter 13 or Chapter 7 bankruptcy or when actually seeking bankruptcy protections.
Creditors under the bankruptcy laws and rules are classified in various categories. Secured creditors are those that have perfected a security interest in goods, or what is commonly referred to as collateral, purchased with the money that is loaned to a petitioner. These include mortgage lenders, auto lenders, furniture purchases, and stated collateral loans when a borrower pledges items as security for loans. Unsecured creditors are creditors who have no particular claim on any possessions of a petitioner. Unsecured creditors are further broken down into priority claims and nonpriority claims. Priority claims are those claims that are non-dischargeable and thus must be paid either through the bankruptcy or after the bankruptcy. Priority claims include such debts as taxes, child support, alimony, and student loans. Non-priority claims are debts that are dischargeable such as personal loans, credit cards, and medical bills. What does this then have to do with preferential transfers? Quite simply put all of these creditors in each category must be treated the same with one exception. The exception is that secured creditors can be changed to unsecured creditors by the surrender of the property to the secured creditor. Once a secured creditor receives the property that is the basis of the debt then they become unsecured creditors. (Such as surrendering a car which you owe money will change the debt from a secured to unsecured status.) A preferential transfer is an attempt, by a petitioner in bankruptcy, to treat one or more creditors different from other creditors in the same category. For instance, the petitioner may wish to pay off an unsecured personal loan from a family member, friend or business associate while not paying other unsecured personal loans from a finance company. Paying, what is termed an “insider,” would express a preferential treatment to that creditor over other similarly situated creditors and thus would be in violation of bankruptcy creditor fairness rules and laws. This is because the other unsecured creditors would not have the same opportunity to receive payments of their debts. Of course, there are limitations placed on what is and what is not a preferential transfer. For instance, payment of a priority unsecured debt may not be considered a preferential transfer because the debt would not be dischargeable under bankruptcy anyway. Also, there are time frames and amounts to consider when deciding if a transfer is preferential or not. If the payment to an insider was made within the year prior to filing a bankruptcy and of more than $600 in value then it may be preferential, but if paid more than a year prior to filing or less than $600 then it is not preferential. If the payment was made less than 90 days prior to filing and over $600 in value to an ordinary creditor then it might be a preferential transfer; however, there are detailed exceptions to this rule. These fine detail points are especially important to consider when filing for Chapter 13 or Chapter 7 bankruptcy protections and are ones that your Montgomery bankruptcy lawyer or Selma bankruptcy lawyer at The Sellers Law Firm are experienced and knowledgeable in and are able to guide you through.
What else does the bankruptcy laws and rules say about preferential transfers. The trustee, who has the job of policing preferential transfers among other duties, can “clawback” the value of the preferential transfer from the creditor or from the petitioner. A clawback is when the trustee attempts to collect money from an insider. Since the preferential transfer would have been part of the estate of a petitioner and thus available to pay to other similarly situated creditors the fairness doctrines of the bankruptcy laws and rules allow the trustee to perform this clawback procedure. So, consideration of preferential transfers allowances and restrictions can play an important part when contemplating or actually filing for bankruptcy protections with the Federal Bankruptcy Court. These considerations are issues that an experienced bankruptcy attorney will discuss, explain, and/or handle when you use The Sellers Law Firm to assist you in helping to protect your interest under bankruptcy protections.
At The Sellers Law, we have over 25 years of experience dealing with detailed bankruptcy procedures such as the ones mentioned above. We are conveniently located in Montgomery, Selma, Greenville, and Troy. All consultations are always free, and our phone lines are answered 24 hours a day! You may contact us by calling or texting 334-LAWYERS (529-9377) or by using the Contact Form on this website. You may also email us at bsellers@sellerslawfirm.com. We can usually meet with you within 24 hours of contacting us! Remember that doing nothing changes nothing so act now and call us today!