Don’t make preferential transfers before you file bankruptcy
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Don’t make preferential transfers before you file bankruptcy

by | Jan 28, 2016 | Bankruptcy

Even before you file for bankruptcy in Wisconsin, it’s important to keep an eye on what you do with your money and how you handle your debt. Paying recurring bills is fine—the electric bill, for example, or the water bill—but you do want to be careful about paying off specific debts or making large payments. These could be considered “preferential transfers.”

Essentially, a preferential transfer is problematic with bankruptcy because it means that the lender who was paid was not impacted in the same fashion by the bankruptcy filing as the other lenders. This can result in lawsuits after you file, as other lenders seeking some of that money.

For example, imagine that you have three lenders who all loaned you $500,000. You only have $400,000 in capital, so you can’t pay back the $1.5 million, and you’re using bankruptcy to eliminate the debt. If you then pay all $400,000 to one lender, meaning that lender only loses out on $100,000, the other two—who are both losing half of a million dollars—will feel it was unfair.

This is especially problematic when you are paying off debts to people close to you. Perhaps two of the lenders are banks, for instance, while the third is your uncle, who is a successful businessman and wanted to invest in your company. The banks will argue that he got preferential treatment due to the family ties. They may then sue your uncle, saying that the $400,000 should have been spread out evenly.

If you want to learn more about what you should do before, during and after your bankruptcy filing, check out our site today.

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