Bankruptcy and Preferential Payments

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    What Is a Preferential Payment?

    What Is a Preferential Payment in Bankruptcy?

    A preferential payment is a payment made to a creditor shortly before filing bankruptcy that gives that creditor more than others would receive through the bankruptcy process.

    Bankruptcy law is designed to treat creditors fairly, so certain payments made before filing can be undone — even if they were made in good faith.

    Common Examples of Preferential Payments

    A payment may be considered preferential if you:

    • Paid one creditor a large lump sum before filing

    • Paid off a loan to a family member

    • Caught up one debt while others went unpaid

    • Made unusual or irregular payments before filing

    Intent does not matter — preference law is about timing and fairness, not wrongdoing.

    The Look-Back Period for Preferential Payments

    • 90 days before filing → payments to regular creditors

    • 1 year before filing → payments to insiders (family, friends, business partners)

    If a payment falls within these windows, the trustee may review it.

    What Happens If a Payment Is a Preference?

    The trustee may:

    • Ask the creditor to return the money

    • Negotiate a settlement

    • Address it through a Chapter 13 plan

    In most cases, you are not personally penalized — the issue is handled administratively.

    What Is NOT a Preferential Payment

    ✔ Normal monthly payments
    ✔ Ordinary living expenses
    ✔ Payments outside the look-back period
    ✔ Payments below certain thresholds

    Disclosure is still required.

    Key Takeaway

    Paying back family or favored creditors before bankruptcy is risky.
    Always discuss recent payments with a lawyer before filing.

     How Far Back Does the Trustee Look?

    How Far Back Does the Bankruptcy Trustee Look at My Finances?

    Many people assume trustees only look at what you own on the day you file. In reality, trustees review financial activity months or years before filing, depending on the issue.

    Common Look-Back Periods

    🔍 Transfers of Property

    • 2 years (federal law)

    • Sometimes longer under state law

    🔍 Preferential Payments

    • 90 days to regular creditors

    • 1 year to insiders

    🔍 Fraudulent Transfers

    • 2 years (federal)

    • Potentially longer under state law

    🔍 Income & Expenses

    • Typically 6 months for means testing

    • Sometimes 1–2 years for patterns

    What Trustees Are Looking For

    Trustees review:

    • Asset transfers

    • Large withdrawals or deposits

    • Payments to family

    • Unusual spending

    • Missing or inconsistent disclosures

    This does not mean wrongdoing — it means verification.

    Key Takeaway

    Trustees don’t just look at what you have — they look at what you did before filing.
    Full disclosure is the safest approach.

    Mistakes That Can Ruin a Bankruptcy Case

    Mistakes That Can Seriously Damage or Ruin a Bankruptcy Case

    Most bankruptcies fail not because of debt — but because of avoidable mistakes. The good news is that most of these mistakes are easy to avoid with proper guidance.

    ❌ High-Risk Mistakes

    These mistakes cause the most serious problems:

    • Hiding assets or income

    • Transferring property to family

    • Paying back family loans before filing

    • Failing to disclose lawsuits or inheritances

    • Lying or omitting information on schedules

    • Ignoring trustee requests

    • Running up debt right before filing

    These issues can lead to:

    • Loss of discharge

    • Case dismissal

    • Repayment demands

    • Fraud allegations

    ⚠️ Common but Fixable Mistakes

    • Forgetting small accounts

    • Misstating values

    • Confusion about legal terms

    • Incomplete initial information

    These are usually fixable if corrected quickly.

    The Biggest Mistake of All

    Trying to fix things yourself instead of telling your lawyer.

    Silence creates problems. Disclosure solves them.

    Key Takeaway

    Bankruptcy is designed for honest people — but honesty must be complete and timely.

    Pre-Filing Bankruptcy Compliance Checklist

    What to Review Before You File

    Use this checklist before filing bankruptcy to protect your case.

    ✅ Financial Disclosure

    ☐ List all bank accounts (open, closed, inactive)
    ☐ List all creditors (including friends & family)
    ☐ Disclose all income sources
    ☐ Disclose cash, side jobs, gig income
    ☐ Disclose retirement accounts and loans

    ✅ Property & Transfers

    ☐ Disclose property sold or given away (last 2 years)
    ☐ Disclose payments to family or insiders
    ☐ Disclose large payments to any creditor
    ☐ Disclose vehicle or title transfers
    ☐ Disclose deed or ownership changes

    ✅ Legal & Financial Events

    ☐ Disclose pending or potential lawsuits
    ☐ Disclose expected inheritances
    ☐ Disclose settlements or bonuses
    ☐ Disclose tax refunds
    ☐ Disclose recent divorces or separations

    ❌ Do NOT Before Filing

    ☐ Do not transfer property
    ☐ Do not repay family loans
    ☐ Do not drain accounts
    ☐ Do not run up credit
    ☐ Do not hide money or assets

    One Rule to Remember

    If you are unsure whether something matters — disclose it.

    There is almost no downside to over-disclosure.

    Final Guidance

    Most bankruptcy problems are preventable. The purpose of these rules is not to punish honest people — it is to ensure fairness.

    With proper planning and transparency, bankruptcy can work exactly as intended.

    Talk to a Bankruptcy Attorney Before Filing

    If you’re unsure whether something you did — or plan to do — could affect your case, ask before filing.

    Ginsburg Law Group helps clients:

    • Identify risks early

    • Avoid trustee challenges

    • Correct issues safely

    • Protect their discharge and future

    👉 Contact us today for a free consultation before filing bankruptcy.

    📞 Call us today for a free, confidential bankruptcy consultation – 855-978-6564 or email us at bankruptcy@ginsburglawgroup.com.

    CLICK HERE for your free case assessment.

    Contact our Bankruptcy Team: bankruptcy@ginsburglawgroup.com

    We work with most major legal services and legal insurance plans.  Some cover your legal fees for bankruptcy services.  Give us a call today to see if your bankruptcy is covered!

    BANKRUPTCY TEAM

    AMY GINSBURG – aginsburg@ginsburglawgroup.com

    GRACIE KLEIN – gklein@ginsburglawgroup.com

    NICOLE LOMBARDI – nlombardi@ginsburglawgroup.com