The MLG Blog


Why you should stop paying your credit cards before you file bankruptcy in Minnesota

January 27, 2010

Many clients are astonished when I tell them to stop paying their credit card bills before we file their case. This advice isn’t given as a way to hurt the credit card companies, rather it is based on the Federal Bankruptcy code. Section 547 of the Bankruptcy Code defines “preference payments.” When a person pays an unsecured creditor within 90 days of filing their bankruptcy they are prefering that creditor over the others who have received nothing, which is unfair to those creditors.

The whole purpose of the bankruptcy is to treat all creditors fairly in the distribution of any non-exempt assets. For most chapter 7 clients the creditors receive nothing. It then follows that if you paid a credit card company in the 90 days previous to filing that creditor is being favored.

If someone does pay an unsecured creditor within 90 days of filing the trustee has the power to “avoid” that transfer. Avoiding a transfer is a fancy way of saying cancelling, or voiding the transfer. The trustee has the power to recover that money from the creditor and split it up among the other creditors. If this happens virtually everyone loses. The client will never see that money, the creditor has the money taken away from them and split up among the other creditors.

Credit card companies understand these rules are are not suprised when they talk with a client and are told that the client won’t be paying anymore as they are planning on filing bankruptcy.

Preference payments are just one of the issues that we cover in our free consultations and bankruptcy planning. If you have been under financial stress and want to learn more about the bankruptcy process please give me a call. We help people in Minnesota deal with their debts every day.

Contact Jim Anderson at the MLG Bankruptcy Group, PLLC at 952-841-0000 or at .(JavaScript must be enabled to view this email address)

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