One of the questions that your attorney will ask you while preparing you bankruptcy petition is: “have you made any payments to any creditors that total $600 or more in the last 90 days?”. This may seem like a strange question, but this is something that the bankruptcy trustee will want to know. Your trustee is appointed to your case to ensure that any assets found in the estate are distributed equally amongst a debtor’s creditors. Often, prior to filing, debtors will feel guilty about discharging large amounts of debt from a particular creditor. To make up for this, the debtor will attempt to pay as much of the debt off as possible, or even pay the debt off in full, in an attempt to maintain a good relationship with the creditor. Unfortunately, this is not permitted by the Bankruptcy Code. In Missouri, any payments given to one creditor totaling $600 or more can be viewed by the trustee as a preferential payment. Because of this, if any single creditor receives payments totaling $600 or more in the 90 days prior to filing, the trustee can void the amount given to the particular creditor, obtain the funds, and disburse them equally among all of a debtor’s creditors. Typical creditors that a debtor would pay more than $600 to in a 3 month span would be a car creditor, for the loan a debtor has against their car, or a mortgage payment. With creditors like these, where the regular debt repayment amount is much higher than average creditors, the trustee would not file anything to recover those funds. However, if a debtor made a large lump sum payment to a creditor such as a credit card, the trustee may want to recover those funds.
Another creditor that the trustee will be interested to see if you have given large quantities of money to is a friend or family member. Many times when debtors find themselves in financial turmoil, they turn to friends and family members to borrow money. Something that many people do not realize is that a friend or family member that you owe money to is treated the exact same way a credit card or medical bill is: it is unsecured debt that will be discharged through a bankruptcy. While it can be tempting to pay back a friend or family member the money you owe them, it is important to consider that they will be treated like the creditors discussed above. If you give a friend or family member a large amount of money in the one year before filing, the trustee can void this transaction and require your friend or family member to give this money back. Even if your friend or family member has already spent the money you gave them, the trustee can legally require them to return the funds. It would be better to wait until after filing your bankruptcy case to begin voluntarily repaying your friends if you truly want to pay them back.