Payments to creditors must be disclosed in personal bankruptcy

People in New Jersey facing bankruptcy often have many questions regarding the process. Many worry about keeping property and how to minimize the impact of a filing on their credit score. One area of particular concern for many filing personal bankruptcy is credit card debt and payments to creditors.

Under the current personal bankruptcy rules, people filing in New Jersey and across the country must disclose payments made to ordinary creditors during the 90 days prior to a filing. Ordinary creditors are those to whom payments were made in excess of $600 and are most often put toward car loans, mortgage and credit cards. This required disclosure is an attempt by the law to ensure that debtors are not running up debts like credit cards just prior to filing bankruptcy.

Another creditor payment that must be disclosed is insider creditors. These are people such as family members. Payments made to insider creditors over the 12 months prior to filing must be listed on the filing documents.

The intent behind the personal bankruptcy rules may be to limit preferential treatment for certain creditors by a person anticipating filing personal bankruptcy. If a creditor is found to have been treated preferentially, there may be consequences for both those making and those accepting payments. Additionally, if a person is found to have failed to disclose all payments to creditors, the filer could actually lose the right to seek the court's protection. Because the bankruptcy rules are so complicated, the right advice may go a long ways toward ensuring that the law is followed and a filer is able to take full advantage of the protection offered by a personal bankruptcy filing.

Source: foxbusiness.com, "Pay Off Credit Cards Before Bankruptcy? " Justin Harelik, July 3, 2012

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