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What is a Preferential Payment in Chapter 7 Bankruptcy
Understanding Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of a debtor’s non-exempt assets by a trustee. The proceeds are then distributed to creditors according to the priorities established in the Bankruptcy Code.
What is a Preferential Payment?
A preferential payment is any payment made to a specific creditor within a certain period before filing for bankruptcy. The Bankruptcy Code considers these payments as unfair since they favor one creditor over the others. Therefore, the bankruptcy trustee can recover these payments and evenly distribute the funds amongst all creditors.
The Timeline for Preferential Payments
The look-back period for preferential payments in a Chapter 7 bankruptcy is 90 days for regular creditors and one year for insiders, such as certain family members or business partners. If any payments were made during these periods, they could be considered preferential.
Exceptions to Preferential Payments
There are certain exceptions to the rule of preferential payments. These include payments made for a debt incurred in the ordinary course of business and payments when added together during the look-back period of less than $600 for non-insider creditors and less than $5,475 for insider creditors.
Seek Legal Guidance
Unraveling the complexities of bankruptcy law, including preferential payments, can be challenging. Seeking legal guidance from Sacramento debt attorneys at Liviakis Law Firm can ensure that you navigate the bankruptcy process effectively. Call us at 916 459 2364 for a consultation.