I’m back. I have been busy writing a book on Chapter 13 bankruptcy — I was asked to do so by a publisher. I should have it completed in a few months, so watch for it. In any event, I am ready to start posting again.
Some time ago I posted on preferential transfers (a.k.a. preferences). Since I will be speaking on preferential transfers (and on fraudulent transfers) in May these topics have been on my mind. Today’s post will look at the statutory definition of a preference. It’s complicated, which is why the post a bit long. However, it’s worth the read. Subsequent posts will look at preference avoidance and defenses to preference avoidance.
There are two main goals of bankruptcy.
The first goal is to give the debtor a fresh financial start . This goal has a laudable pedigree that has its origins in the Bible, ancient Roman law, and the U.S. Constitution .
The second goal is to ensure that all creditors who are similarly situated are treated equally and fairly. There are two ways in which debtors sometimes violate this second big goal: (1) They don’t list all of their creditors in their bankruptcy papers, and (2) They make preferential payments to certain creditors in anticipation of bankruptcy.
If a debtor omits a creditor from the list, then the debt to that creditor will not be discharged at the conclusion of the case. (See 11 U.S.C. §§ 523(a)(3) and 1328(a)(2). But see In re Beezley, 994 F. 2d 1433 (9th Cir. 1993) (Unscheduled debt is discharged in a no-asset Chapter 7 case if the debt would have been discharged if it had been listed).) If the debtor purposely omitted the creditor, and thus “made a false oath,” i.e., committed perjury, the debtor may either be denied a discharge, or have a discharge revoked. (See 11 U.S.C. §§ 727(a)(4)(A), 1144, 1230, and 1328(e)(1).) However, there can be a bright side to this scenario: the debtor may end up receiving free room and board at government expense, which could greatly reduce any stress over finances .
The focus of these posts is on the other way debtors violate the second big goal: preferential transfers. We begin with the definition.
Continue Reading Preferential Transfers II