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Fix Creditor Preference Violations Before Filing Bankruptcy

Posted By admin || 17-Oct-2008

In both Chapter 7 and Chapter 13 bankruptcy, the debtor is not allowed to give any creditor preference over another. But what often happens is that before filing for bankruptcy a debtor will repay family and friends while not paying anything to unsecured creditors. This is unwise because if a bankruptcy case is filed within a year of these payments to family and friends, the trustee make take the money from the friend or family member the debtor paid and redistribute it to creditors in accordance with the Texas bankruptcy laws. If a debtor has already shown preferences to family or friends who loaned money the debtor can correct this with the "new value" exception found in 11 U.S.C. 547(c)(4) and undo a preference by having the family member or friend extend a new unsecured loan in the amount that was repaid. This effectively unravels the preference before the bankruptcy. For this to work, the debtor must use exemptions to protect the money. This method is risky so discuss any transfers or loan repayments with your bankruptcy attorney.

Categories: Credit and Bankruptcy
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