Preference Payments: Why Paying Family Back Before Filing Backfires
Paying your mother back before you file feels honorable — and it's precisely the payment the trustee can undo. Preference law exists so that one creditor doesn't get paid in full while others get nothing, and it treats payments to family with special suspicion.
The basic 90-day rule
Payments to ordinary creditors totaling more than the statutory threshold, made within 90 days before filing while you were insolvent, can be recovered by the trustee under 11 U.S.C. § 547 and redistributed to all creditors.
The one-year rule for insiders
For 'insiders' — relatives, business partners, close associates — the look-back stretches to a full year. Repay a $3,000 family loan eight months before filing and the trustee can sue your relative to get the money back for the estate.
The good news: disclosure, not disaster
A preference isn't fraud and doesn't threaten your discharge — it must simply be disclosed. Attorneys manage the problem with timing (waiting out the window) or chapter choice, and the person who was paid, not the filer, faces the recovery demand.
Exemption amounts and rule thresholds change on statutory schedules. See our monthly rule reports for the current figures with citations to the official sources.
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Bankruptcy.AI is a technology platform, not a law firm, and does not provide legal advice. Majors Law Group, P.C. is a separate, independent law firm. This page is general information and is not legal advice; outcomes depend on your specific facts.