Michigan’s Rules for Avoiding Preferential Transfers in Bankruptcy
When navigating bankruptcy proceedings in Michigan, it is crucial to understand the rules surrounding preferential transfers. A preferential transfer is a payment or transfer of assets made by a debtor to a creditor within a certain time frame before filing for bankruptcy. These transfers can complicate the bankruptcy process, potentially disadvantaging other creditors. In Michigan, specific guidelines govern how these transfers are treated.
The primary federal law regulating preferential transfers is found in the Bankruptcy Code, specifically under 11 U.S.C. § 547. This chapter outlines what constitutes a preferential transfer and under what circumstances such transfers can be avoided. To qualify as a preference, the transfer must meet several criteria:
- Transfer of Property: There must be a transfer of property or an interest in property.
- To or for the Benefit of a Creditor: The transfer must be made to a creditor or for their benefit.
- Debtor Insolvency: The debtor must be insolvent at the time of the transfer.
- Within 90 Days of Bankruptcy Filing: The transfer must occur within 90 days before the filing for bankruptcy (or one year if the creditor is an insider).
- Preference Over Other Creditors: The transfer must allow the creditor to receive more than what they would have received in a Chapter 7 bankruptcy case.
If a transfer meets these criteria, it may be set aside by the bankruptcy trustee. Michigan courts adhere to these federal standards while also considering state-specific implications.
There are several defenses against a preferential transfer claim in Michigan. For instance, if the transfer was made in exchange for new value, it may be exempt from avoidance. Additionally, if the creditor had no reason to discern the debtor's insolvency or if the transaction was completed in the ordinary course of business, such transfers might be protected. Similarly, transfers made under a contemporaneous exchange for new value are generally not considered preferences.
Understanding the intricacies of preferential transfers is essential for individuals and businesses filing for bankruptcy in Michigan. Engage with an experienced bankruptcy attorney to assess your situation and discuss potential strategies to protect your interests during this challenging time. Effective legal counsel can help navigate these rules and provide insights tailored to your specific circumstances.
In conclusion, being informed about Michigan's rules for avoiding preferential transfers in bankruptcy can significantly influence the outcome of your case. Ensuring compliance with these laws may streamline the bankruptcy process and potentially safeguard valuable assets.