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Florida Debt Collections and Payment

Friday, October 19th, 2018 | The Cash Flow Group | No Comments

Florida debt collections and payments – advice from The Cash Flow Group.

Florida Debt Collections

How to Avoid Preferential Debt Payments

Everyone has creditors they would rather pay back before others. This includes debts owed to family or friends. You should pay back these debts before bankruptcy. Then they are now considered preferential debt payments. This would allow the bankruptcy trustee to recover any payments made. Preferential payment helps to make payments distribute more even amongst all creditors.

How long must you wait in order to avoid a preferential debt payment?

This will vary depending on your relationship with the creditor. A preferential debt payment is a payment made within 90 days of filing for for bankruptcy.
 
Three important things to note:
 
1. Payment must exceed $600
2. You must be insolvent at the time of payment
3. The creditor must receive more than they otherwise would in a bankruptcy settlement
 
Close friends and family have even stricter terms. These payments made within 1 year before filling for bankruptcy are being considered a preferential debt payment. The same three requirements will still apply.

What happens when a preferential debt payment occurs? 

What is a preferential debt payment occurs during the bankruptcy process? In that case, the trustee can recover (clawback) the full amount paid.
 
This is not illegal unless the payment was being made to defraud creditors or hide assets from the court.
 
In most cases, the payment is being clawed back from any of the involved parties. The payment will then become part of the bankruptcy settlement.

How to avoid preferential debt payments?

The easiest way is to simply avoid having payments fall within the designated periods. This means you may have to avoid filling for bankruptcy until these payments have cleared the preferential period. You should not do this with the intent of defrauding your other creditors or in an attempt to hide assets though, or else you may risk charges for your actions. One way to avoid this confusion is to stick to a regular schedule for payments, as to avoid the appearance that these payments were made purposefully to favor one party over another.

This article should not be taken as legal advice. Yet, the information provided should help you decide whether you have given or received a preferential payment. If you believe you may have an issue, we suggest you seek the advice of a lawyer.

Do you have questions about preferential payment?  Feel free to contact us today!  We look forward to hearing from you!

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