Public Service Announcement: Don't Take Money Out of Your 401K to Pay Back Your Mom When Filing

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Public Service Announcement: Don't Take Money Out of Your 401K to Pay Back Your Mom When Filing

Remember that a Chapter 7 bankruptcy is referred to as a liquidation bankruptcy and involves forfeiting your non-exempt assets to a trustee in exchange for a discharge of debts. The trustee will liquidate you assets for cash in a trustee sale and distribute the balance (less a percentage and administrative costs) among your creditors.

A preference is payment made within 90 days of bankruptcy on a debt that is accrued or acquired prior to the debtor making a payment to the creditor on account of the debts that allows the creditor to receive a larger portion of its claim that it would had it been compensated only through the bankruptcy proceedings. That is, if you make a large payment preferentially to one creditor prior to filing bankruptcy, it alters the fair distribution of your assets among all creditors and is thus considered a preference.

An insider preference is a preference made to creditor that is also an insider; that is a relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor; or a corporation of which the debtor is a director, officer, or person in control. In simple terms, this refers to situations where you owe money to your mom, a business partner, or any other individual with whom you have a personal relationship. An insider preference occurs if you attempt to pay off that debt prior to filing bankruptcy.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Christopher Ariano, Ariano and Reppucci PLLC | Attorney Advertising

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