Chapter 7 Bankruptcy And The 90 Day Rule

Many people who file for bankruptcy may or may not be aware of the 90 day rule in bankruptcy. If a person is not sure what this is they should seek the advice of a bankruptcy attorney for clarification. Do not rely on friends, family, or the internet. Some will say the 90 day rule, or preferential rule as it is also called, prohibits the debtor from paying any bills during the time period up to the bankruptcy. Others think that the rule means they should not buy anything leading up to the bankruptcy. Many are just unclear as to how it works. In a nutshell, the 90 day rule allows a trustee in a Chapter 7 bankruptcy to recover payments the debtor made on any one of their debts if the payments were made in the 90 days prior to filing bankruptcy. This would show preferential treatment or payment to one creditor over any of the others leading up to and during the bankruptcy process.

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The 90 day or preferential rule is not meant to penalize debtor conduct. There is no downside to a debtor who, meaning no harm, pays one creditor over another. The rule operates to the prejudice of a creditor who received more than their fair share of the debtor's assets prior to the commencement of the bankruptcy filing. This is a bankruptcy specific statute. Some state laws are very clear whether a debtor can pick and choose among his creditors which ones to pay and which ones not to pay. The unpaid creditors may have recourse under state law, which may in some instances include giving the payment back to the trustee.

In reality the trustee's right to pursue preferential payments is that small payments are seldom gone after by the Chapter 7 bankruptcy trustee. By statute, payments of more than $600 in the 90 days prior to filing to one creditor can be looked at. However, it may not be economically feasible to sue a creditor to recover $600. Every trustee has their own rule of thumb about when a preference can and should be recovered to provide a dividend to creditors, and most assuredly this amount would be well over the $600. The bottom line is to always run anything and everything by a bankruptcy attorney for clarification to avoid any problems down the road.

There are numerous advantages to filing bankruptcy which is why so many people seek this as an option to their financial situation. In many instances, according to those filing bankruptcy the good things certainly outweigh the little things that are bad. Before deciding to file bankruptcy take some time to figure out all of the positives and negatives as well as other options. The best way to accomplish this is to sit down and have a consultation with an experienced bankruptcy attorney in your area. It is very important to find out all of the facts before making any decisions. Keep in mind the main reason for filing Chapter 7 bankruptcy in the first place is to come out debt free.

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