Two weeks before Edna files for bankruptcy she pays a friend $25,000, the full amount of money she owes her. After paying her friend, Edna has only $100 in assets but still owes $50,000 in other debt. What will the court likely do?

Question

Quizplus · Accepted Answer

The trustee will likely void the transfer because it appears to be a preferential payment made shortly before filing for bankruptcy, which is not allowed. The law seeks to ensure equitable distribution among all creditors, and paying off a friend in full just before declaring bankruptcy undermines this principle.

Two Weeks Before Edna Files for Bankruptcy She Pays a Friend