Specifically, and payments made greater than $600 to any single creditor within the three months before you file bankruptcy. This is a “Top Ten Do” because it affects a lot of our clients in a number of situations and is true for clients in Iowa and Nebraska. A payment greater than $600 to any single creditor within the three months before you file bankruptcy can be considered to be what is called a preferential payment. The trustee will examine these payments to determine whether or not one of your creditor received “preferential” treatment by being paid prior to the bankruptcy while the rest of your creditors did not receive the same treatment. The trustee has the ability to claim the payments made (or force these payments to be returned) and distribute them evenly among all of your creditors.
Normal payments such as rent, mortgage, car payments and childcare services are not normally of interest to the trustee. However, payments to your friends and/or family members are definitely of interest to the trustee. Many people want to repay their friends and family members so they don’t have to include them in their bankruptcy. While we can definitely understand this desire, it could result in bigger problems for the friend or family member you tried to pay back. Should the trustee decide that a payment made to a particular person was a preferential payment, he will demand that person hand it over to the bankruptcy estate. Clearly, this would be a problem if the money is no longer available.
This same theory would apply to the rest of your creditors as well. If your income is being garnished as a result of a judgment against you, this money can be either reclaimed by the trustee, or in many cases, we as your attorneys are able to reclaim these payments for you provided certain steps are taken. For the most part, creditors are familiar with this situation and equipped to deal with it upon proper demand so it is not as complicated as having a friend or family member involved.
Aside from your regular monthly bills, make sure you consult with your attorney before paying any one single creditor more than $600 during the three months prior to filing for bankruptcy.