preferential transfer in bankruptcy

If you are considering filing for bankruptcy, you should consult with a Tampa bankruptcy lawyer as soon as possible. Without competent legal advice you may be unaware of laws that prohibit a preferential transfer in bankruptcy. U.S. Bankruptcy laws prohibit certain purchases, payments, or transfers of property prior to filing for bankruptcy. The Trustee has the right to bring an action to avoid transfers that occurred prior to the bankruptcy case. If the Trustee discovers a preferential transfer in bankruptcy it can cause significant consequences for the debtor.

What is a Preferential Transfer in Bankruptcy

One of the possible grounds for a trustee to avoid a pre-bankruptcy transfer is a preferential transfer in bankruptcy by the debtor. A preferential transfer enables a creditor to receive payment of a greater percentage of his claim than he would have received in bankruptcy if the transfer had not been made. For example, a debtor borrowers money from a family member and pays that debt in full within 90 days of filing for bankruptcy while not paying other creditors.  In order to avoid a preferential transfer, the Trustee must prove all of the following:

  1. The debtor transferred property to or for the benefit of a creditor
  2. A transfer was made for or on account of a debt that was owed prior to the transfer
  3. The transfer was made while the debtor was insolvent
  4. A transfer was made within 90 days of filing for bankruptcy
  5. The transfer enabled the creditor to receive more than he would have received in a Chapter 7 bankruptcy if the transfer had not occurred

What Qualifies as a Preferential Transfer in Bankruptcy

The law regarding a preferential transfer in bankruptcy is very broad and includes many different types of transfers. The policy behind the law is to enhance the bankruptcy estate for the benefit of creditors. Additionally, it is intended to encourage a proportional distribution to creditors.  See Union Bank v. Wolas, 502 U.S. 151. Actions taken by a debtor to hide, conceal, or transfer assets can be deemed an attempt to defraud creditors. You should contact a bankruptcy law firm in Tampa for more advice on planning for bankruptcy if you think it may be something on the horizon.

Defenses to a Preferential Transfer in Bankruptcy

If the trustee fails to prove all five requirements the transfer will not be deemed a preferential transfer in bankruptcy. However, even if the trustee does successfully prove all of the required elements there are still defenses. If a debtor is successful in proving a valid defense the transfer will not be avoided by the trustee and will not be deemed an invalid preferential transfer in bankruptcy. Defenses to preferential transfers include but are not limited to:

  • The transfer was made in the ordinary course of business
  • The transfer was substantially contemporaneous with the origination of the debt
  • A transfer that creates a security interest in property acquired by the debtor to the extent such security interest secures new value
  • Earmarking – a third party or a guarantor makes a payment or provides funds to the debtor “earmarked” for payment on a particular debt.
  • The transfer that was payment of a domestic support obligation.
  • The debtor’s debts are primarily consumer debts and the aggregate value of all property affected by the transfer is less than $600

Bankruptcy Law Firm in Tampa

Florida Law Advisers, P.A. is dedicated to providing effective representation, individual attention and affordable fees to our bankruptcy clients. Florida Law Advisers, is a customer-service oriented firm with a strong reputation for providing dedicated legal counsel. Regardless of whether you need help with Chapter 13, Chapter 7, or other forms of debt relief, our professional legal team of bankruptcy lawyers in Tampa will provide you with competent legal advice you can trust.  Call us now at 800 990 7763 to speak with a bankruptcy lawyer in Tampa at our firm.


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