The Bankruptcy Code provides that certain payments made just prior to filing a bankruptcy case may be preferential payments. Preferential payments are defined as payments made to a creditor that allow the creditor to receive substantially greater payment at the expense of other creditors in the case. A trustee in a bankruptcy case may avoid or seek return of payments made that prefer one creditor at the expense of other creditors. This often arises in cases where individuals pay off one debt while not making payments on their other debts. It also arises commonly when individuals pay back loans to friends or family members shortly before filing bankruptcy.
Generally speaking, payments of $600.00 or more to an unsecured creditor made within 90 days of a bankruptcy filing is a preferential payment. Also, repayment of debt to a family member within 12 months of a bankruptcy is a preferential payment.