What constitutes a preferential payment?

In short, a preferential payment means in effect that a company in trouble has made payments to unsecured creditors ahead of secured creditors without a sound reason to do so other than following the personal preferences of the Directors. Such transactions are deemed to be ‘voidable’.

What does a trustee ask during bankruptcy?

Along with these mandatory questions, the trustee may ask about your property and other assets, your income, your expenses, your debts, and so on. The trustee might also ask about discrepancies in your bankruptcy forms, how you came up with a value for various property items, and so on.

How does a bankruptcy trustee verify income?

Most trustees will compare the information provided in the bankruptcy petition and schedules (the paperwork you file with the court) to other financial documents you turn over, such as paycheck stubs, tax returns, and bank statements.

Does preference have payment?

Preferential payment is a payment or asset transfer to the creditor before liquidation process. Such creditors have advantage over other small creditors. A liquidator can recover funds directly from the creditors. Provisional liquidator, administrator, receiver or manager has no power to recover payments.

What is an unfair preference for someone or something?

An unfair preference (or “voidable preference”) is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair …

How far can a liquidator go back?

two years
Transfer of business assets such as the trading name, contracts or property, are often placed under scrutiny by the liquidator, who can look back in the company’s affairs for a period of two years prior to the date of insolvency.

Can a bankruptcy trustee take preference payments back?

If you make a preference payment (also called a preferential transfer), your bankruptcy trustee may be able to get the money back from the person or business you paid – called “avoiding” the transfer. Not every prebankruptcy payment qualifies as a preference, however.

When do you get preferential payments in bankruptcy?

The preference period is only the 12 months before filing bankruptcy for payments made to friends and family, known as “insiders.” It’s even shorter for other unsecured creditors , like past-due utility payments or an unsecured credit card.

Why are preference payments given to insiders in bankruptcy?

The Bankruptcy Code looks at preference payments to insiders differently from regular creditors. The Code wants to give a fair shake to all creditors. People filing bankruptcy can’t pay back all their debt to families, leaving other creditors out to dry.

Can a bankruptcy trustee force a creditor to return money?

The trustee will usually start by asking the creditor to return the money. If the creditor won’t comply, the trustee may have to file a lawsuit within the bankruptcy case in order to force the creditor to return the money. As the bankruptcy debtor, you must cooperate with the trustee,…