Paid back a student loan co-signed by my dad - is that preferential?

[Esidedude88]

Hi all - I paid off a student loan over the last year in the amount of $3500. Given a recent foreclosure and the real possibility of a deficiency judgment, I'm trying to pre-plan in the event I have to file chap. 7. Are my student loan payments considered "preferential" because my dad was a co-signer on the loan? I'm very confused because I never paid any money to my dad - it was to my loan servicer and it was from my money. But I read on the internet that my paying back this loan could "benefit an insider" though. I'm sooo confused by this. What's even more ridiculous is that in BK cases "all creditors are considered equal." That's BS. A defaulted student loan can destroy you for years. Thoughts?

[leonel9]

Payments to a creditor over $600 in the past 90 days are assumed to be preferential. I would wait 90 to 180 days since your payment before filing, in order to try to prevent objections.

After 90 days one has to make a case that your payment was a fraudulent transfer, attempting to hurt other creditors by paying off non-dischsrgable debt.

Not sure how likely this would be over a $3500 payment, but I would let ample time pass and have a good explanation. For example, why did you pay the entire account off, vs. the minimum/past due amounts?

[justbroke]

Well, not all creditors are considered equal under bankruptcy law. There are priorities and the highest priority creditors are domestic support obligations followed by taxes and other creditors. Even before we get to most of the general unsecured debt, secured creditors have a higher priority. It's the general unsecured creditors that are considered to be at the same priority in most cases. (See 11 USC 507 for an exhaustive, and exhausting, list of priorities.) It gets even more complicated because there may be an actual preference but, under Chapter 7 liquidation practice, the creditor may have had a higher priority and still received the funds. The question is always whether the preference is "avoidable."

I digress.

As for paying your student loan and not your mortgage I'm not sure I would be too worried. As far as I know, even if there is a benefit to your dad that you paid the co-signed loan, you did not pay your dad (an insider) because your dad is not the creditor. I'm assuming the creditor is someone you don't know (such as NELNET, FannieMae or some other lender). Your co-signer is not the "beneficiary" of the transfer. The student loan company is the beneficiary and is an outsider. The preference (presumption) period would be 90 days before filing. It's always best to allow some time between making large payments and filing.

If you were to ask me, filing bankruptcy is worse than defaulting on a student loan. Any time one defaults on any debt, even a home with a foreclosure (deficiency) judgment, one can be "destroyed for years" by the negative reporting on one's credit report.

I hope I cleared some things up for you and didn't make it less clear.