Question regarding $600 payment rule to creditors within 90 days of filing Chapter 7

[ScaredGuy]

Hi guys, I've read that you are not supposed to make payments of $600 or more within 90 days before filing for Chapter 7 bankruptcy. I have a couple of questions on this:

1. Is this $600 rule regarding the amount of a single payment, or the total amount of all payments to a single creditor within 90 days of filing?

2. I have a personal loan that I pay about $505 per month on and the last payment went through on the 25th of May. I was potentially planning on filing for Chapter 7 bankruptcy in the 3rd week of July. Does this mean I would need to wait until something like August 25th before filing due to the $600 rule, or would it not be a deal breaker?

Thank you for any information.

[justbroke]

There is absolutely no rule that says that you can't make payments to creditors within 90 days of filing. Zero. Zilch. Nada. The Internet is a bad place to get information, unless you're on Avvo or a site that has actual bankruptcy attorneys. I think that the information here on BKForum is relatively good.

There is no rule that you're not supposed to make payments exceeding $600 over 90 days prior to filing.

What you are referring to is called a preference (or preferential transfer). There are two types: outsider and insider. They both have a time period where the trustee can recover the money from the creditor. This is not against the debtor. The Trustee doesn't come after the debtor for this amount. The Trustee "may" go after the creditor if the amount is significant enough to make a difference. I don't know what that magic number would be, but it is likely on a case-by-case basis. For an insider, that lookback is a 365 days. The total is in aggregate over that period of time.

This is something that a debtor doesn't worry about unless they paid to an insider that they care about.

For a debtor that is filing soon, the problem is that these payments are likely a useless waste of money. This is possibly why a bankruptcy attorney tells a debtor to stop making payments. The money is also a waste of the debtor's effort. Some debtors say they want to preserve their good payment history but that history is trashed once the bankruptcy is filed and the creditor summarily marks the account as included in bankruptcy. The payment history is erased, the account balance set to $0, and the account marked as included in bankruptcy (IIB). So all that effort is for naught.

I assumed that you were filing with an attorney and they already told you to stop making these useless payments (considering that one is filing within 90 days).

[PoorlyFunded]

I'd like to dovetail what JustBroke responded: He's right. And whether the trustee goes after that $600 is at their discretion. The trustee receives like $70-80 per Chapter 7 case review. If they can liquidate any assets, then they get a portion of that. But $600? They'd have to be crazy to go after that amount; it would bring them zero financial benefit and would waste their time.

[ScaredGuy]

PoorlyFunded justbroke thank you both for the information. One more question that's a little bit different of a topic if you don't mind: I own a piece of land - according to the county government, the assessed value of the land is $6,000. However, I see listings on the internet for similar lots of land at $10,000 although I'm not sure if anyone is actually buying them at that price. Would the trustee value this asset at what the government says it's worth, or online marketplaces?

[justbroke]

You'll hate my answer, but, it depends. At the end of the day, the Trustee or someone will need to either get an appraisal or just put it on the market to let the market decide. Generally speaking, the assessed value, at least in Florida, is not the market value. I do realize that in some parts of the Northeast, the local property assessors use an inflated assessed value to generate tax revenue. But normally, the assessed value may be the depreciated value and in no way represents the actual market value.

If you have no exemption to cover the asset then the Trustee is going to sell the property and let the market determine how much it is worth. If you are only able to cover $6,000 or a $10,000 property then the Trustee is going to sell the property unless you can prove that it is worth less than the $10,000 valuation determined by the Trustee.

Does that make sense?

[awafan]

There is no rule that you're not supposed to make payments exceeding $600 over 90 days prior to filing.

For an insider, that lookback is a 365 days. The total is in aggregate over that period of time.

What is an insider?

[justbroke]

An insider is a family member, business partners, and other close relationships defined in 11 USC 101. Generally, for most of us, an insider is a family member.

[ScaredGuy]

This does make sense. Since similar lots are selling online for around $10,000... I might be able to use what's left over from my homestead exemption and the wildcard to cover $10,000 worth of value in this property right? Basically I'm really trying to make this a "no asset" case to avoid waiting months upon months for the trustee to sell this piece of property.

You'll hate my answer, but, it depends. At the end of the day, the Trustee or someone will need to either get an appraisal or just put it on the market to let the market decide. Generally speaking, the assessed value, at least in Florida, is not the market value. I do realize that in some parts of the Northeast, the local property assessors use an inflated assessed value to generate tax revenue. But normally, the assessed value may be the depreciated value and in no way represents the actual market value.

If you have no exemption to cover the asset then the Trustee is going to sell the property and let the market determine how much it is worth. If you are only able to cover $6,000 or a $10,000 property then the Trustee is going to sell the property unless you can prove that it is worth less than the $10,000 valuation determined by the Trustee.

Does that make sense?