A fairly typical case came across my desk recently: the
debtor was a single mother whose marriage fell apart. Her parents had
paid the down payment on the couple’s condo. As part of the marriage
dissolution, the condo got sold, and the wife paid her parents back –
about $20,000, paid in April. No one drafted any legal documentation of
this loan, and the payment was directly from the single mother’s bank
account, not through the escrow.
Because of other issues, the debtor needed to file
bankruptcy right away, in August. The trustee noticed the payment and
asked for it back.
This kind of payment is called a
“preference,” because it shows a debtor “preferring” to pay one creditor
over another just before filing bankruptcy. Preferences belong to the
bankruptcy trustee, who may recover them and pay them out to the
creditors.