What does the Bankruptcy Code mean by the term “preference”?

A preference occurs when a consumer favors one creditor over another. For instance, if you know that you are going to be filing for bankruptcy and you have a favorite creditor whom you want to make sure gets paid, so you pay him the money you owe before filing, then that creditor has received a preference. The bankruptcy courts do not like preferences, and if the payment was made to that particular creditor within a 90-day period before you filed, the courts can actually rule to take the money back from that favored creditor and redistribute it fairly among all of your creditors.

What does the Bankruptcy Code mean by the term “fraudulent conveyance”?

A fraudulent conveyance is the word the courts use to define the action of a debtor trying to hide property from his creditors by giving it away (possibly with the hope of getting it back after the bankruptcy case is over) or selling it. The Bankruptcy Code allows the courts to look back at all of your property transfers for the last two years to determine if any of those transfers took place for the purpose of defrauding the creditors. The court has the power to void this transfer of property and make it once again part of the debtor’s bankruptcy estate. This being the case, it is always the best policy to be completely open and transparent with your attorney, because trying to hide things from the court is not advised, and can get you into trouble.


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