Will it be a preferential payment if I pay the past due mortgage immediately before Chapter 7 bankruptcy?
3 attorney answers
Possibly. In general terms, a preference is a payment made in the 90 days prior to the petition date based on an antecedent debt that allows a creditor to receive more than they would have received in a chapter 7 liquidation. So, the question then becomes, will the creditor receive more than they would be entitled to in chapter 7 liquidation? This depends on whether the value of the mortgage holder's lien on your property exceeds the amount of the mortgage. If the lender is fully-secured, there's no problem. If you plan to keep your house, you will need to cure the arrears and continue making post-petition payments anyway, so you can pay the arrears and continue making post petition payments. If you file a chapter 13, you can pay the arrears in your chapter 13 plan.
If there is a wholly secured creditor, wherein the full loan is supported by the value of the collateral or the value of the collateral exceeds the indebtedness, you can be sure there is zero preferential effect.
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Attorney Woods states perfectly in my view the law. This also assumes by "past due" you are not for example taking $30,000 in monies that would not be exempt and paying on mortgage though. Thus, there is always an exception but you only need to do one simply thing: Call and discuss with an experienced bankruptcy attorney now!
Your asking that question implies you have not called and discussed with an experienced bankruptcy attorney near you as you would or should know the answer to that question posted here on AVVO. Other facts and issues can gravely affect your case so I will point these out for you next some issues so you know you only need to do one thing now: call an attorney near you to discuss bankruptcy. You need and want to enjoy your fresh start also. But the most important thing is to meet with an attorney as you asking this question means you have not. You care about 2 goals: keeping everything you have equity in and discharging all your debts. If you don't have any of the exceptions to discharge you will obtain that goal; most exceptions are set forth in 11 USC. 523 (Google it) like child support, some income taxes, traffic (in a ch 7) and criminal fines , and presumption of student loans. But some debts are dischargeable in a ch 13 but NOT in a ch 7 so you want to make sure and your attorney will discuss any such types with you also!
Your exemptions depend on what state you have lived in in the last 2 years and thus if in your state, then your states exemptions will apply. Most persons filing keep everything they own but your attorney will confirm that with you when they learn everything you own and the equity thereof!
Some secured debts like homes, vehicles, other secured debts an attorney will discuss your options on also as you must list any debts; but that does not mean you will lose them unless you have too much equity or are in default on paying for them! Discuss those options if they apply with your attorney too.
But other issues can arise that can greatly harm your case. Just one example: If you paid back a relative $3,000 11 months ago and now file bankruptcy next week, the trustee can SUE that relative to retrieve that $3,000 (under what is called a preference) for the benefit of the bankruptcy estate. As a result, most attorneys don't charge to meet with them the first meeting so meet with one no matter what.
Many great attorneys can be found right here on AVVO in your state so look, call, and meet one as soon as you can.
You should also want to know when to file: is there an advantage of waiting versus filing now and who should you pay between now and then! Good luck and enjoy your later fresh start.