Is this considered "preferential payment?"

[Danglin]

My wife and I will be filing chapter 13 in the next month or so for the main purpose of dealing with the IRS, as well as about 100K in cc debt.

We've stopped using all of the cards, however, we have a line of credit with the bank attached to our primary checking (it's BofA). Over the last few months, we've had cash flow problems in which I've had to either transfer money from the credit line, or it was done automatically by the bank to cover incoming debits. During this time, we've transferred money back into this LOC, only to need to go back to it to cover more expenses.

Even though we know we'll be filing BK sometime in June, we want to pay this off using proceeds from the sale of an extra car later this month. The main reason for wanting to do this is, my in-laws are on the credit line, though they don't use it. Once we file BK, we don't want them to be impacted, and we certainly don't want them to know about it.

So, is paying off the line of credit going to be a "preferential payment" issue with the trustee? Remember, this is a chapter 1.

Any help would be greatly appreciated.

[eddiep]

I had a credit line attached to my checking account, they closed that sooo fast! One missed payment on all ccs and they shut me down. How large were the payments?

[Danglin]

I had a credit line attached to my checking account, they closed that sooo fast! One missed payment on all ccs and they shut me down. How large were the payments?

Biggest one was $1000, but most were between $50 to $300.

[lrprn]

Lines of credit are typicaly considered unsecured debts so list this account on your forms. It will be wiped out after you file. Just be sure to move your checking and any other accounts out of that bank because most lines of credit have cross-collaterization clauses that will allow the bank to raid your other accounts and freeze them.

I can appreciate that you don't want your inlaws to find out you filed. However, if you pay back more than a total of $600 to the line of credit in the 90 days before you file, then the trustee can declare that a preferential payment and go after the bank to return whatever you paid them.

Talk to your lawyer about this before doing anything else - certainly before making any more payments.