The Nightmare of Chapter 7 Bankruptcy Preference Payments
Have you ever had a nightmare that seemed so real that your heart started racing? Have you ever had one of those nightmares where you thought your suffering would never end? Then,…….you woke up. Do you remember feeling that wave of relief wash over you as you exclaimed, “Thank you God that it was only a dream.”
I still sometimes have that nightmare that I’m back in college half way through the semester and remember that I missed the deadline to officially drop a class and now I’m going to get a bad grade since I’ve missed half the classes.
Reading about bankruptcy on the internet without consulting with an attorney can lead some people into some nightmare conclusions.
Reading about Chapter 7 bankruptcy before you meet with an attorney is a great idea. However, don’t let something you read on the internet keep you from discussing your situation with a real life bankruptcy attorney. An experienced bankruptcy will have insights into the legal aspects of your situation that you would never be able to figure out on your own. Your bankruptcy attorney might be able to end your nightmare.
I recently met with a client who was distraught because of something she read on the internet. She thought that she was barred from filing Chapter 7 bankruptcy because she used her $1,000.00 tax refund to repay a loan from her mother. Any payment to a relative is always going to be a red flag to a Chapter 7 trustee. A preference is a payment to a creditor that can be recovered by a Chapter 7 trustee and redistributed to all creditors to avoid the preferential or unfair payment to the single creditor. In her situation, she clearly made a preferential payment to her mother. However, she was mistaken to believe that this payment barred her from filing a Chapter 7 case.
Since she was unemployed and had no source of income, she knew that she could not file a Chapter 13 bankruptcy. For weeks, she endured the nightmare of harassing phone calls and threatening letters from various creditors. After the Floyd County Sheriff drove up to her house and delivered a creditor collection lawsuit, she had decided that she had to something. Finally, she broke down to come meet with me and see if there were any options.
In tears, she explained her situation to me.
After listening to her story, I asked, “Could your mother pay that $1,000.00″ to the Chapter 7 trustee.”
“That would not be a problem at all,” she replied.
“Why not file Chapter 7 and then let your mother cut a check to the Chapter 7 trustee for the $1,000.00?”
“We can do that?” she asked.
“Yes we can.” I replied.
You should have seen the look of relief on her face.