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Payment to creditor before bankruptcy

I was recently told that making a payment in full to a creditor on the eve of bankruptcy is a serious offence… obviously I can’t get the money back. what kind of penalty would I be looking at? The funds in question amount to about 5000.00 and were obtained from income tax and RRSP redemption. I thought I was doing good?

One Response to “Payment to creditor before bankruptcy”

A licensed trustee said...

Unfortunately, you have committed an offence called a “preferential payment”. Basically, you’ve treated one of your creditors better than the rest by repaying them just before you filed.

To correct the problem your trustee has a few options:

1) they will contact whomever it was that you repaid and ask them to voluntarily return the funds to your trustee (for the benefit of all of your creditors);

2) initiate legal action to compell the creditor thatyou repaid to return the money to your trustee;

3) hold you repsonsible to pay an amount equal to the amount you already paid so that your other creditors receive an additional benefit (in other words, you will pay an extra $5,000 beyond whatever other amounts you are required to pay0; and/or

4) notify your creditors of what you did so that they can decide whether or not to take action against you.

In most cases, option 1 works, so no other options need to be considered. I

Regardless of your good intentions, if you have any influence over the person that you repaid (perhaps it was a family member) you might want to ask them to co-operate with your trustee. If they don’t, you are the one that will face the consequences one way or another.