When you file for bankruptcy, your creditors are entitled by law to be treated equally and fairly. This means you can’t favor one creditor over another by making what are known as “preferential payments.” An example of a preferential payment would be choosing to pay back your mother in full, instead of your credit card, right before you file for bankruptcy. To ensure some creditors aren’t given an unfair advantage over others, the Bankruptcy Code allows the trustee handling your case to scrutinize every payment you’ve made during the year before you filed. If you have paid or transferred money or property worth more than $600 (six hundred dollars) to any single creditor in the 90 days before you file, the law deems it a preferential payment. Likewise, if you’ve paid $600 (six hundred dollars) to a relative or friend in the year before you filed, it’s also considered a preferential payment. Once it’s been proven that you improperly singled out some creditors by making preferential payments to them, the bankruptcy judge can order those creditors, even if it’s your mother or your friend, to return the money or property so it can be added to the pool of funds available to all your creditors.
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