Preferential transfer ?

[325Falcon]

What happens if a trustee rules that a preferential tranfer has taken place?

Does he reverse the transfer so the orginal crediter gets the debt back?

What are the chances of this happening if 90+ days has passed and payments have been made?

[iplk70]

He may decide to pursue the money if it's substantial, it depends on the district and/or the trustee.

[HHM]

If the trustee goes after a preferential transfer, the trustee requests the money back from the creditor...if the creditor refuses, then the trustee sues the creditor in BK court. If the trustee wins, the creditor must pay that money to the trustee. At that point, the creditor may choose to object to the discharge of the debt. But the creditor must still have grounds to object to discharge, the mere fact that a payment to a creditor was ruled a preferential payment does not automatically make the debt non-dischargeable.

Preferential transfers actions are rare with your "everyday" creditors unless the amount is substantial. Preferential transfer is more common when a debtor makes a transfer to an insider...i.e. puts a car in someone elses name, or pays back their parents $3,000 instead of their other creditors.

[325Falcon]

So if the orginal creditor agrees to or is ordered to pay the trustee, does the trustee give that specific dollar amount back to the creditor who took on the preferential transfered debt?

Is $4000 considered substantial in the eyes of the big creditors?

[Boscoe]

As far as preferential treatment goes, although you may be interested, it has no bearing on your case and is not something you need to do anything about - it is solely the trustee's call on what and how much he goes after.

[lrprn]

So if the orginal creditor agrees to or is ordered to pay the trustee, does the trustee give that specific dollar amount back to the creditor who took on the preferential transfered debt?

Here's what happens....you make a payment greater than $600 total during the 90 days before you file to one of your creditors. After you file, your trustee finds this payment and decides whether it's worth the effort to go after it as a preferential payment.

If your trustee decides to go after it, then he/she contacts your creditor and tells them to send him/her the amount of the preferential payment. The creditor sends your trustee the amount of the preferential payment because the creditor has to - it's the law.

The trustee adds the amount into the "pot" your creditors get when you file. If you filed Ch 7 and were a non-asset case, you then become an asset case. If you filed Ch 13, your payback % is increased due to the returned money in your Ch 13 disbursement account.

Is $4000 considered substantial in the eyes of the big creditors?

If you made this payment to one non-secured creditor - especially to an insider like a family member or friend - then yes, your trustee may choose to go after that much.

Keep in mind that if your trustee does go after this $4K, it's between your trustee and your creditor only. This $4K debt still gets discharged.

[Bandit]

intent to receive a preference, notice of insolvency, fraud or other subjective elements.
and then it goes round & round & round.

I also read a Trustee has up to 6 years from the time of a BK to go after preferential payments. (?)
It seems to me that if Trustees try to do this in every case they would end up at a lot of dead ends

[Bandit]

I have a question.

Is it possible for the preferential transfer to come back on the debtor? for example- trustee starts a bunch of comotion with the one bank who recieved payment, another bank cries for an objection against the debtor in BK to have the debtor pay back what he borrowed in the transfer?

Wouldn't something like that put a stop to the whole preferential transfer argument?

[HHM]

I have a question.

Is it possible for the preferential transfer to come back on the debtor? for example- trustee starts a bunch of comotion with the one bank who recieved payment, another bank cries for an objection against the debtor in BK to have the debtor pay back what he borrowed in the transfer?

Wouldn't something like that put a stop to the whole preferential transfer argument?

Keep in the back of your mind...Preferential Transfer is when the debtor uses an "asset" of the soon to be created BK estate to pay a creditor in preference over similarly situated creditors.

The scenario you suggest, if I am reading it correctly, is the typical "balance transfer" scenario. Using one credit card to pay of another. That scenario does not give rise to "preferential transfer" because the debtor did not use an ASSET of the estate.

As other's have pointed out, preferential transfer actions almost never involve the debtor.

[Bandit]

I see what you mean, HHM. Yes, you have the scenario I was thinking of right. Preferential transfer has to be an asset. I did not know it was viewed only like that.

Is preferential transfer & preferential payment the same thing?

[HHM]

Is preferential transfer & preferential payment the same thing?

....Yes, essentially, insofar as both require the transfer of "assets" out of the soon to be BK estate.

These ideas are best illustrated by example

Preferential transfer: Debtor has three cars but can only exempt two and car 3 is worth $5,000. Debtor wants to hold onto all three so debtor sells car 3 to his brother-in-law for $500. The trustee could rightly go after the brother-in-law to return the car or pay the value of the car to the trustee. The trustee's power to undue this transaction comes under the trustee's avoidance powers. In reality, preferential transfer is really a bad name for this scenario. If the debtor had filed BK with all three cars, car 3 would have been non-exempt and therefore the trustee would have sold it at auction and used the proceeds to pay creditors. (the key to this scenario is the fact the debtor sold the car for below market price, if the debtor sold car 3 for market value to his brother-in-law, the trustee could not go after the car...but then you get into issues of how the debtor used the money).

Preferential Payment: Debtor is getting ready to file BK but owes his father-in-law $3,000. Instead of listing his father-in-law as a creditor, the debtor takes the last bit of cash she has and pays her father-in-law the $3,000. The trustee could undue that payment because the debtor paid her father-in-law (an unsecured creditor) in preference to her other unsecured creditors. The asset in question is the "cash" used to make the payment. However, the debtor, assuming she still had available credit, could use a cash advance from a credit card to pay her father-in-law, and that payment would NOT be considered a preferential payment...but if the cash advance was taken within 0-6 months of filing BK, odds are, the creditor would object to discharge of that debt.

Granted there are many different scenarios, but I think you get the idea. The scenarios listed above are the most common mistakes debtors make when they don't do their research.

[Bandit]

....Yes, essentially, insofar as both require the transfer of "assets" out of the soon to be BK estate.

These ideas are best illustrated by example

{examples}

Granted there are many different scenarios, but I think you get the idea. The scenarios listed above are the most common mistakes debtors make when they don't do their research.

I understand. I do keep seeing those same mistakes over & over.
The examples were what I was thinking of. I had never considered listing a relative as a creditor. I suppose if I owed them money then I would, before giving them back what is over the amount for preferential payment.
Thanks Again.

[JollyGG]

However, the debtor, assuming she still had available credit, could use a cash advance from a credit card to pay her father-in-law, and that payment would NOT be considered a preferential payment...but if the cash advance was taken within 0-6 months of filing BK, odds are, the creditor would object to discharge of that debt.

I did a balance transfer from one credit card to another for a 0% interest rate a month or two before filing. The trustee went back to the cc that was paid off in the balance transfer and got the money back to distribute to my creditors, thereby making my case an asset case.

[325Falcon]

I did a balance transfer from one credit card to another for a 0% interest rate a month or two before filing. The trustee went back to the cc that was paid off in the balance transfer and got the money back to distribute to my creditors, thereby making my case an asset case.

This is the type of transfer I was thinking of. But by the time I file 90 day would have passsed and I would have made three payments on the tranfer by the time I file. Albeit late payemnts.

[JollyGG]

This is the type of transfer I was thinking of. But by the time I file 90 day would have passsed and I would have made three payments on the tranfer by the time I file. Albeit late payemnts.

While it made our case an asset case it really had no practical effect on us. We discharged on time and the rest was between the creditor and the trustee. The only reason we knew it was going on was due to following it on PACER.

As HMM sugested since we did the balance transfer so close to filing the creditor who we transfered the balance too was not happy. They did threaten to object, but the amount was not high enough to make it worth their time and they never followed through.

The creditor that the trustee got the pay-off from I'm sure wasn't happy either, but their wasn't anything they could do about it. As I said, it was between the creditor and the trustee and we were not involved.