Fact Pattern 23-1 Bailey Has Been Making Large Credit Card Purchases for Months

Fact Pattern 23-1
Bailey has been making large credit card purchases for months. He has also borrowed money from Jack and Susan, friends of his, so that he can continue his rather lavish lifestyle involving foreign travel. He borrowed $1,000 from Jack and $2,000 from Susan. He also borrowed $500 from his mother. Bailey finally decides that he can no longer continue to make even the minimum payments on his credit cards and considers filing for bankruptcy. He does, however, want to pay some of his debts. Bailey, therefore, puts off the credit card companies and saves his cash. He starts the New Year off by paying on January 1 all funds owed to his mother. He was particularly concerned about repaying his mother because he still lived at home and had some concerns that she would kick him out of the house if he did not repay her. Then, on June 1 he pays Jack; and on July 4, he pays Susan. Bailey proceeds to file bankruptcy on August 2 because he has repaid anyone he really cares about. He plans to complete the bankruptcy and move to the Caribbean.
-Refer to fact pattern 23-1. Which of the following is true regarding the repayment of the loan to Bailey's mother?

A) It will be considered a preference because Bailey's mother would be considered an insider, and it was made within one year of the filing for bankruptcy.
B) Although Bailey's mother would not be considered an insider, the payment would be considered a preference because it was made within one year of the filing for bankruptcy.
C) The filing will be considered a preference only if Bailey and his mother had an agreement that she would advance the amounts to him again once the bankruptcy was completed.
D) The payment would not be considered a preference because it was not made within 30 days of the filing for bankruptcy.

Correct Answer:

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