Preference actions in converted cases

[consumerbk]

Hello. This question has been stumping me. When a debtor files a 13 and then converts to 7, if a preference action is started by the Trustee, will there be a credit applied for the amounts that the debtor paid while in a 13? For instance, if the debtor made a transfer of $15,000 prior to the filing, pays $3000 to the bankruptcy trustee and a preference action is started upon conversion to a 7, will the trustee apply a credit to equal to the amount that was paid during the chapter 13?

[despritfreya]

Probably not since, if the Plan was Confirmed, the first money paid out would have gone to administrative creditors (legal fees) and then to secured creditors. Unsecured creditors are at the bottom of the pile so, unless there were no claims ahead of them it is unlikely that they got any of that $3k.

Des.

[consumerbk]

Okay, next question: The case was filed in 2009. Wouldn't a preference action filed at this late date be time-barred?

[despritfreya]

No. If the 2 years runs before conversion, upon conversion the 7 Trustee has 1 year to file the preference action. See 11 USC 546.

Des.

[justbroke]

Conversions open up a lot of things including, but not limited to a new 341 Meeting. I hope that the debtor considered the affects of conversion and any dischargeability problems. If there is a preference problem, why would the debtor care? The only time a debtor would probably care about a preference, is when the preferred creditor was a close relative.

Otherwise, I do not know why a debtor would worry about a preference. I'm hoping someone could tell me that my lack of concern is misplaced.