BUSINESS LAW QUESTION 3 Which of the following could be pref

BUSINESS LAW QUESTION

3. Which of the following could be preferential payments under the Bankruptcy code? You must also explain why? (each is worth 5 points for a total of 35 points)

a.            You pay back a $2,000 loan from a parent or sibling within one year of the date you filed bankruptcy

b.            You pay off a large credit card balance 90 days before filing for bankruptcy

c.             A friend or family member pays one of your creditors in exchange for work you do for the friend or family member

d.            You give a creditor a lien or mortgage on some land you own to secure payment of an old debt you owe 90 days before your bankruptcy case is filed

e.            PMSI in equipment for $100,000 with the debtor getting possession on April 1, 2015, and the filing to perfect that interest is filed on April 15, 2015. However, the debtor filed for bankruptcy on April 3, 2015.

f.             A PMSI in equipment that was filed on April 1, 2015, when the debtor had possession of the       equipment on September 1, 2014 and the debtor filed for bankruptcy on May 1, 2015.

g.            A bank loan for $40,000 entered into on June 1, 2014 and payable in full at 4% interest on May 31, 2015. However there were payments made of $1000 on August 1, 2014, December 1, 2014, March 1, 2015, and April 1, 2015 with the debtor filing for bankruptcy on April 15, 2015.

Solution

The preferential payments under the Bankruptcy code are as follows:

•   You pay back a $2,000 loan from a parent or sibling within one year of the date you filed bankruptcy.
•   You pay off a large credit card balance 90 days before filing for bankruptcy.
•   A friend or family member pays one of your creditors in exchange for work you do for the friend or family member.
•   You give a creditor a lien or mortgage on some land you own to secure payment of an old debt you owe 90 days before your bankruptcy case is filed.

It is a creditor who owed as a payment of debt, though the debt would be insolvent within 90 days or within 1 year, which one can file for bankruptcy. If the payment is for an inside creditor, then family member would enable the creditor to obtain more than it would have obtained from properties and assets distributed to the creditors. It signifies the liquidation of assets.