Preferential Payments to vendors?

[amberk]

I have a question on preferential payments.

I run a small business and one of my vendors insists I need to get caught up with them, or they won't offer their services any longer. This service is crucial to the business, and if I don't pay them, then there IS no more income.

So, if I get caught up with them (about 9k or so), will this be considered 'preferential'?

If so, what is the 'worst case scenario'. (I'm considering ch13).

Thanks!

[HHM]

If you are doing chapter 13, then it is a non-issue so long as you con afford to pay that amount into the chapter 13 (that is, at least pay $9K over the life of the plan) to reconcile the value of the non-exempt asset.

If chapter 7, then you have a bigger problem. $9K would probably be considered preferential (since we are talking about payment for supplies already received, a debt).

[987654]

Now, I don't know your situation, but I have a LLC which has it's own business checking account, which is what I use to pay ongoing expenses. I brought this very situation up to my attorney, since I have ongoing expenses of $3k+ a month buying product to resell. Like you, if I don't buy the product, I don't have a business.

This is how my attorney explained it to me: the debt/expense is a BUSINESS debt/expense, not a personal debt/expense. So using business funds to pay business expenses is just fine. In fact, my attorney suggested I use any excess business funds in my business account to pay off legitimate business debts before I filed. He said at worst the trustee will want to see receipts/invoices confirming the payments were for legitimate business expenses, which is no problem in my case. Basically, the trustee understands that it 'takes money to make money' and that paying vendors so you can keep a business going is EXPECTED so you have the income to support the plan. Which makes sense

Again, I don't know the details of your business, so your situation could be very different. And I haven't had my 341 yet, so I have no idea what kind of questions the trustee will have for me. So my suggestion is that you consult with a local attorney before taking any action just to be safe...