One of the common misconceptions about filing for bankruptcy is the 90 day rule. If you ask debtors that are filing bankruptcy if they understand what the 90 day rule is, you get answers like, you can't buy anything for 90 days prior to the bankruptcy filing or you stop paying your bills 90 days before filing. Both of them sound like they could be true, but in reality there is no 90 day rule that makes a difference to a debtor.
Many debtors filing for bankruptcy have heard of it but have no idea of how it works. The 90 day rule allows the bankruptcy trustee to recover payments that a debtor made on legitimate debts, if those payments during that 90 day time frame gave the creditor more money than they would have gotten out of the bankruptcy filing. The bankruptcy code calls these payments, preferences.
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This interesting piece of the bankruptcy code wasn't put there to penalize a debtor's behavior. The trustee won't do anything to a bankruptcy filer if they paid one creditor more than another. The reason the rule is in place is to not prejudice other creditors because they got a larger amount of the debtor's assets before the bankruptcy estate was created. Many states have laws allowing the debtor to pick and choose what bills they want to pay without damaging their bankruptcy. Depending on the state, unpaid creditors might have remedies under certain state laws, but those don't include them going after creditors they got a larger portion prior to the bankruptcy filing.
In reality, the Chapter 7 bankruptcy trustee has the right to recover any payments that exceed the total amount of $600.00, 90 days prior to filing for bankruptcy. With the high cost of legal fees, it's not prudent to pursue creditors for such small amounts of money. Every bankruptcy trustee has an amount that becomes wise for them to attempt to recover the funds.
The bankruptcy code has many confusing sections that only a bankruptcy attorney can decipher. That's why when an individual faces the fact that filing for bankruptcy might be on the horizon, it's best not to waste any time fiddling around trying to figure it out on your own, but consult a bankruptcy attorney immediately. When an individual finds a bankruptcy attorney that they feel comfortable with, they can be confident that their case will be handled in a professional manner. This goes a long way when someone has been beaten up by creditors for months and is suffering from low self-esteem with a feeling of failure. Knowing that you have someone to navigate through the complexity of the bankruptcy code will make you sleep well at night.
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