Most people filing bankruptcy have certain obligations they would rather pay such as loans to family and friends before paying their other debts. But if a preferred creditor is paid back with money or property prior to filing bankruptcy it may be considered a preferential debt payment or transfer. The Bankruptcy Court has the power to undo the preferential payment or transfer and recover the money or property from the recipient in order to distribute the money or property among all of a person’s creditors.

Filing Bankruptcy and Fair Treatment of Debts

“A common example of a preferential payment I encounter in my practice occurs when a client receives a tax refund and uses the money to repay a debt owed to a family member or friend before filing bankruptcy on all their other debts,” says attorney Jon M. Gold of RGG Law. A client must be careful not to treat the people close to them and differently than their other creditors before filing bankruptcy as the goal of the Federal Bankruptcy Law, according to Mr. Gold, is fair treatment of all the person’s debts.