January 19, 2016
One part of the bankruptcy process is to determine whether you have made any payments to creditors that qualify as a “preference.” It is human nature to prefer to pay a family member whom you owe money to or a favorite creditor prior to paying an unrelated or unknown creditor. In bankruptcy, the word preference is used to describe what is often an innocent payment of one creditor over others.
Preference liability analyzes payments which occur before the bankruptcy petition is filed. Two rules apply in determining the “reach back” period of time for the preference. If the creditor is an “insider,” as defined in the bankruptcy code, then the preference period is one year before the petition filing. If the creditor is not an “insider,” then the preference period is limited to the 90 days before the bankruptcy petition is filed.