Chapter 7 bankruptcy can give you a fresh start with your finances while getting rid of certain debts. Yes, filing for bankruptcy can be scary and stressful. But the relief you get later can make your financial situation much more manageable. In today’s blog from Groce & DeArmon, P.C., our bankruptcy attorneys answer, “What is a preferential debt payment for Chapter 7 bankruptcy?”
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Preferential Payments Explained
Preferential payments are payments made to debtors in the three months leading up to your Chapter 7 bankruptcy petition.
A preferential payment is one potential asset you can get through bankruptcy proceedings. Chapter 7 bankruptcy attorneys will ask you what payments you’ve made to debtors in the past 90 days or one year for insiders such as family or friends.
You may be able to recover these preferential payments through the bankruptcy trustee. But there are some caveats.
Preferential payments for Chapter 7 bankruptcy are for payments made to creditors that are $600 or higher. For example, you make car payments totaling $750 over three months before filing for bankruptcy. The bankruptcy trustee can get this money back from the car loan company.
Where Does the Preferential Payment Money Go?
The proceeds from the preferential payments go to pay unsecured creditors, such as credit cards and medical bills, rather than going back to you. The money you get from preferential payments does not go towards secured loans because creditors will sell the security (such as a home or vehicle) to pay the debt.
Are Preferential Payments Rare?
You may never have to worry about preferential payments. That’s because most Chapter 7 bankruptcy filers don’t make any payments on their debts in the months leading up to going to court to seek debt relief. Your chapter 7 bankruptcy attorney can help determine if you have made preferential payments that can be recovered.
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Bankruptcy Attorneys at Groce & DeArmon, P.C.
Are you considering Chapter 7 bankruptcy to seek relief from your debts? Our attorneys can help you through this difficult decision. Contact Groce & DeArmon, P.C., or call toll-free 1-800-640-3706 in Missouri or (417) 862-3706 to schedule a free consultation.