Bankruptcy's 90-Day Rule
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Many people are aware of the Bankruptcy Code's 90-day rule, sometimes called the "Preferential Payment Rule" but often are confused about what it means. What is the 90 day rule, and how does it affect you when you file for bankruptcy?
Within the 90-Day Rule, the bankruptcy trustee who administers your case can try to avoid or undo a payment that was made in the 90 days prior to the day you filed for bankruptcy. This payment, however, must fall within these requirements:
1. The payment must have been made to a creditor, or for a creditor's benefit 2. For a previous debt (meaning you were paying off the creditor for what you already owed, not creating a new debt) 3. While you were insolvent (that is, you had more debts than you had assets) 4. The amount you gave the creditor was more than they would get in bankruptcy
The rationale behind this rule is that it is unfair to pay off one creditor with money that would otherwise be split among them all. If you have $1,000 in your bank account and use it all to pay off your entertainment system debt and nothing to pay off your credit card balance, that payment will be undone. If you had not made the payment, that $1,000 might have been used to pay all the creditors equally, or it might not have been used at all. Either way, your entertainment system creditor got more than he would have gotten otherwise, and the bankruptcy code sees that as unfair.
It is important to understand that this is not a penalty for you for paying a debt. The creditor will have to pay it back, and it won't make a huge difference for you in terms of the bankruptcy process and its effects.
So, if you do think you might have to file for bankruptcy soon, it is important to not try and pay off creditors. This money will be needed within the bankruptcy process and the payments might even be exempt from bankruptcy. If you are facing bankruptcy, it is an excellent idea to talk to an experienced bankruptcy attorney. Each bankruptcy situation is different, so an experienced attorney can make the process much easier and less confusing.
Article Source: Articlelogy.com
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