Asked by Ariana Chapman on Jun 15, 2024
Verified
Mindy liked to spend money and had a large amount of consumer debt for items such as jewelry,clothing,a personal watercraft,and a new car.Mindy was having problems making her credit card payments as they became due.She wanted,however,to make every effort to pay her debts.On September 1 she repaid a loan to Friendly Jewelry Store because she wanted to remain on good terms with the manager.Unfortunately,Mindy was simply unable to continue making payments; and on November 1 of that same year,she filed a voluntary petition for bankruptcy relief under Chapter 7.A number of her creditors complained because Friendly Jewelry Store received more from the Mindy's early payment than it would have received in bankruptcy proceedings.Which of the following is the most likely result of a claim of preferential payment based on the payment to the jewelry store?
A) The payment was not preferential because it was for a consumer good and was not made within 30 days of the filing of the bankruptcy petition.
B) The payment was preferential because it was made within 90 days of the filing of the bankruptcy petition.
C) The payment was preferential because it was made within 90 days of the filing of the bankruptcy petition,but only if the trustee can establish Mindy's insolvency at the time.
D) Because it was for a consumer good,the payment was not preferential unless the bankruptcy trustee can prove intent to defraud.
E) The payment was preferential because it was made within two years of the filing of the bankruptcy petition.
Preferential Payment
A payment made by an insolvent debtor that gives preferential treatment to one creditor over another.
Voluntary Petition
A legal document filed by an individual or entity declaring their intent to undergo bankruptcy proceedings under their own accord.
Bankruptcy Relief
Legal measures available to individuals or corporations that cannot meet their financial obligations, allowing for reorganization or discharge of debts.
- Understand the principles underlying the treatment of preferential payments and the conditions for their challenge.
Verified Answer
MS
manpreet singhJun 19, 2024
Final Answer :
B
Explanation :
Because a major purpose of the Bankruptcy Code is to prevent debtors from making payments to one creditor and thus treating that creditor preferentially,the trustee has the power to recover preferential payments,or payments made by an insolvent debtor that give preferential treatment to one creditor over another.If the debtor made any payments within 90 days of the bankruptcy filing,the trustee can examine these payments as preferential payments.For a payment to be preferential,the trustee must show that the transfer gave the creditor more money than the creditor would have received through bankruptcy proceedings.Thus,other creditors are disadvantaged by the debtor's preferential payment.
Learning Objectives
- Understand the principles underlying the treatment of preferential payments and the conditions for their challenge.