What is a preference reclamation action? 13 Answers as of July 06, 2011

I saw a credit counselor for help with my finances and he tried to explain bankruptcy and preference reclamation to me but I didn't understand what he was saying. Can someone explain it to me in simple words?

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Janet A. Lawson Bankruptcy Attorney
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
Why ate you getting legal advice from a "credit counselor"? They are not lawyers and can not give you legal advice. Simply put a "preference" in bankruptcy is a transfer of property made before filing bankruptcy which would defeat the creditors rights. Example: you have a 50,000.00 car. You "sell" it to a friend for $1.00. The trustee can go to your friend, get the expensive car back, and sell it to pay your creditors.
Answer Applies to: California
Replied: 7/6/2011
Burnham & Associates
Burnham & Associates | Stephanie K. Burnham
A preference is when you pay one of your creditors some money just before you file a Bankruptcy. In essence you have "preferred" that creditor by giving that creditor money and not your other creditors. Depending on the circumstances, the Bankruptcy Trustee can make your creditor give those payments back "reclaiming the preference".
Answer Applies to: New Hampshire
Replied: 6/29/2011
Law Offices of Alexzander C. J. Adams, P.C.
Law Offices of Alexzander C. J. Adams, P.C. | Alexzander Adams
Let's say you have $10,000 on the eve of bankruptcy. Your attorney tells you she can protect let's say $5,000 and she tells you the court will take an interest in the of $5,000 (meaning the court will take it). You get the idea to pay back a loan to a friend or family member [let's use uncle Bob] (or some other creditor) with the $5,000 rather than allowing the court to do the distribution. This is called a preference payments (or sometimes a fraudulent transfer). The trustee and the court has the ability to sue Uncle Bob and recover the $5,000.00 to more equally distribute the amount to your other creditors. Essentially, you can't give away all of your stuff to friends and family and then file bankruptcy. The court can get your stuff back.
Answer Applies to: Oregon
Replied: 6/29/2011
Bankruptcy Law Office of Robert Weed
Bankruptcy Law Office of Robert Weed | Robert Weed
If you paid a debt to a family member in the year before the bankruptcy, the bankruptcy court will get that money back form the family member, and give it to your credit cards, instead.
Answer Applies to: Virginia
Replied: 6/28/2011
Ellahie & Farooqui LLP
Ellahie & Farooqui LLP | Javed Ellahie
Preference simply means that if payments were made to a creditor within 90 days (the period becomes 1 year if the "creditor" is an insider - generally a relative) prior to filing a bankruptcy, then the trustee may be able to get that money back from the creditor so that it is distributed amongst all the creditors.
Answer Applies to: California
Replied: 6/28/2011
    Bankruptcy Law office of Bill Rubendall
    Bankruptcy Law office of Bill Rubendall | William M. Rubendall
    There is no provision in the bankruptcy code for a "preference reclaimation action."
    Answer Applies to: California
    Replied: 6/28/2011
    Bird & VanDyke, Inc.
    Bird & VanDyke, Inc. | David VanDyke
    A preference is when an unsecured creditor, usually a family member or friend, receives payment over ordinary creditors. The law does not differentiate between types of creditors. When you pay your family back and you don't pay ordinary creditors this is a preference. The trustee has the power to set aside these payments and spread this money equally among all your creditors.
    Answer Applies to: California
    Replied: 6/28/2011
    Colorado Legal Solutions
    Colorado Legal Solutions | Stephen Harkess
    Basically, if you make payments to some creditors and not others within 90 days of filing bankruptcy, this is called a preference. It isn't fair to the other creditors. As a result, the Trustee can take back the money paid to the creditor within the preference period and spread it out more evenly among the creditors.
    Answer Applies to: Colorado
    Replied: 6/28/2011
    Ashman Law Office
    Ashman Law Office | Glen Edward Ashman
    The Bankruptcy Code permits a trustee to recover from creditors payments made shortly before (usually 90 days) the bankruptcy filing where the payment gave the creditor more than other, similarly situated, creditors would get through the bankruptcy process. The preference statutes are simply an attempt to achieve equity between creditors. The money or assets you gave to the one creditor would then be divided amongst all your creditors.
    Answer Applies to: Georgia
    Replied: 6/28/2011
    Law Office of Jackie Robert Geller
    Law Office of Jackie Robert Geller | Jackie Robert Geller
    If you pay one of your pre-existing debts, like a credit card, within 4 months of filing a chapter 7 bankruptcy, the bankruptcy trustee can try to get the money back from that creditor to spread among all your creditors. If the payment is to a relative or business associate, then they can go back a whole year.
    Answer Applies to: California
    Replied: 6/28/2011
    Ursula G. Barrios Law
    Ursula G. Barrios Law | Guillermo Machado
    Paying a family or friend back instead of other creditors and the creditor going after that money.
    Answer Applies to: California
    Replied: 6/28/2011
    Law Offices of Steven A. Wolvek
    Law Offices of Steven A. Wolvek | Steven A. Wolvek
    when you pay family members or friends before filing. Family its 1 year before filing and friends 90 days before filing - when that happens the Trustee can sue the person paid and get the money back so it can be distributed to all similar creditors.
    Answer Applies to: California
    Replied: 6/28/2011
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