I Prefer Not To Pay You
If you are contemplating filing bankruptcy during this holiday season, it would only be natural for you to want to do something nice for the friends and family who loaned you money to help you get by during your rough financial times.  Make them a nice homemade gift.  Whatever you do, do not repay them.  Why not?  Because after you file bankruptcy, the Trustee may be able to avoid the preferential payment.

What is a preference?

Under 11 U.S.C. § 547, the Trustee may avoid any transfer of an interest of the debtor in property:
  1. to or for the benefit of a creditor
  2. for or on account of an antecedent debt owed by the debtor before such transfer was made
  3. made while the debtor was insolvent
  4. made
    • on or within 90 days before the date of the filing of the petition OR
    • between 90 days and 1 year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider
Who is an insider?

If the debtor is an individual, an insider can be:
  1. a relative of the debtor
  2. a general partner of the debtor
  3. a relative of a general partner of the debtor
  4. a partnership in which the debtor is a general partner
  5. a corporation of which the debtor is a director, officer, or person in control
Why are these type of payments avoidable?

The law is trying to create an even playing field.  All creditors should be entitled to share in a debtor's assets.  It is not fair if a debtor is preferring one creditor over another.

What can happen if a debtor makes a preferential payment?

Instead of you coming off as a nice person who was simply trying to fulfill a moral obligation by repaying what would otherwise be a discharged debt, or trying to keep the creditor from learning of your upcoming bankruptcy, the recipient of your kindness can suddenly find himself/herself right in the middle of your bankruptcy.

You can avoid all embarrassment by turning over to the Trustee the equivalent amount of the preference payment that you made (or some negotiated amount).

If you don't have the money to pay the Trustee, you may have to embarrassingly ask the recipient to return the money.  Of course, the situation could be worse if the recipient spent the money and no longer has the ability to return it.

The situation can really go from bad to worse if neither you nor the recipient return the money to the Trustee.  Depending on the amount at issue, the Trustee may actually sue the recipient to try to get the money back.

What should you do?

Be a Grinch!  Other than making your mortgage, HOA, and car payments, don't pay any of your creditors in the 90 days before you file bankruptcy.  In addition, don't pay back any friends or family during the year before filing bankruptcy.

Keep in mind that you can always fulfill your moral obligations by repaying your friends and family after you file bankruptcy.


Upcoming Events


Zach Shelomith is going to be a panelist at the American Bankruptcy Institute's 2015 Caribbean Insolvency Symposium (http://www.abiworld.org/CIS15/), which is being held at the Westin Grand Cayman in Grand Cayman, Cayman Islands between
February 5, 2015 and February 7, 2015.


He is the only panelist from the State of Florida who will be speaking at the session about individual Chapter 11 bankruptcy.  The moderator at that session will be Judge A. Jay Cristol, Chief Emeritus of the U.S. Bankruptcy Court for the Southern District of Florida.
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Case Study
A prospective bankruptcy client met with us for a no-cost initial consultation right before Thanksgiving.  She is a single mother of 3 kids.  She came to see us because her home was scheduled to be sold at a foreclosure sale on December 1, 2014.



She started to have financial difficulties when she lost her job in February 2014.  As a result of the loss of income, she was unable to make her mortgage payments.  She didn't have much money in the bank, and she was barely able to afford to put food on the table for her family.  Luckily, her mother had $8,000.00 in savings, and has been able to help her try to meet her monthly obligations.

Although the prospective client's mother simply wanted to give her daughter $1,000.00 per month, the prospective client's pride wouldn't allow that.  She insisted that the money be considered a loan.  By the time she met with us, the prospective client owed her mother $8,000.00.

During the consultation, the prospective client told us that she had just filed her 2013 income tax return on October 15, 2014, and that she just received a $5,000.00 tax refund.  She wanted to surprise her mother on Thanksgiving by giving thanks for the money she had loaned her.  She intended to pay her mother $5,000.00.  She also intended to file bankruptcy on November 30, 2014 in order to stop her foreclosure sale.

Fortunately for this prospective client (and her mother), she came to see us!

We advised her not to repay her mother prior to filing bankruptcy, as the payment would have been an avoidable preference.  Instead, we explained that she would be able to repay her mother after filing bankruptcy.  She and her mother were very thankful. 
Blogs

How does Federal Student Loan Settlement Work?

If you are interested in settling your defaulted federal student loan, it is important to understand that a settlement results in a lump sum payment to satisfy the total amount you owe in full.    Read more.


Sallie Mae Student Loans: Who is Navient?

Borrowers with Sallie Mae student loans may soon be receiving communications from "Navient." Sallie Mae has announced that it has split up into two companies and Navient, the new company, will be handling all of the servicing and billing of its federal and certain private student loans.  Read more.


Collection Fees With Federal Student Loans

As if owing an overwhelming amount of student loan debt isn't bad enough, do you know that if you default on your loan the lender can add collection fees to the cost of the loan?    Read more.
About Leiderman Shelomith, P.A. 

 

Leiderman Shelomith, P.A. was founded by Jonathan Leiderman and Zach Shelomith in 2003. The firm quickly built an excellent reputation across South Florida as a boutique bankruptcy law firm, handling both personal and corporate bankruptcy matters, including Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, as well as state court Assignments for the Benefit of Creditors. Felipe Plechac-Diaz joined the firm as an associate attorney in 2014.  The firm began representing borrowers with their federal, state, and private student loan matters in 2014, including the defense of student loan lawsuits.

 

The firm's attorneys have been recognized as a South Florida Legal Guide Up and Comer, a Super Lawyer Rising Star for the State of Florida, a Florida Legal Elite Up and Comer, and a Florida Legal Elite. Our attorneys are members of the National Association of Consumer Bankruptcy Attorneys, the American Bankruptcy Institute, and the Bankruptcy Bar Association for the Southern District of Florida, among other organizations. The firm's attorneys are also frequent lecturers at seminars and community programs, speaking about bankruptcy law to attorneys and the general public.

 

The firm, Mr. Leiderman, and Mr. Shelomith, are AV® Preeminent Rated Attorney's, awarded by LexisNexis® Martindale-Hubbell®, for having obtained the highest possible peer-review rating for their ethical standards and legal ability.

 

The firm represents debtors, creditors, and bankruptcy trustees in all aspects of bankruptcy cases, including litigation and appeals, handling both liquidations and reorganizations. The firm also represents borrowers in all aspects of student loan law, including federal, state, and private student loans. Our office is conveniently located in suburban Fort Lauderdale, Florida, and is easily accessible from anywhere in Miami-Dade, Broward, and Palm Beach Counties. We handle bankruptcy debtor cases across the Southern District of Florida, particularly in Broward, Miami-Dade, Palm Beach, and Monroe Counties, and other bankruptcy cases and student loan matters throughout the entire State of Florida.

 

Disclaimer 

 
The information you obtain in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters, and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.