You know the bankruptcy is coming. Before you file, you do the decent thing: you pay your mother back the money she lent you when the furnace died. She did not charge interest, she never sent a demand letter, and the loan was the only reason you kept the house. Paying her first feels less like a maneuver than like an obligation of honor.
Then the trustee sends your mother a letter demanding the money back.
This is the clawback, and it is the single most reliable way for an honest debtor to create a problem that did not exist before. Nothing about it requires bad faith. The law that takes the money back from your mother does not ask whether you were trying to cheat anyone; in its main form it does not ask about your intent at all.
Why the law treats a fair payment as a problem
Bankruptcy’s organizing principle is equal treatment of equals. Creditors of the same rank share the pot in the same proportion. A payment made on the eve of filing does not reduce what you owe the world; it moves one creditor to the front of a line that bankruptcy was about to form. So the Code gives the trustee power to undo it and redistribute the money to everyone.
Under 11 U.S.C. § 547 (b), the trustee may avoid a transfer of an interest of the debtor in property that was (1) “to or for the benefit of a creditor,” (2) “for or on account of an antecedent debt owed by the debtor before such transfer was made,” (3) “made while the debtor was insolvent,” (4) made within the applicable look-back period, and (5) that enables the creditor to receive more than it would have received in a chapter 7 distribution. Notice what is absent. There is no element of fraud, no element of concealment, and no element of intent. A perfectly fair payment of a perfectly real debt satisfies every one of these.
The word “transfer” is also wider than most people expect. Section 101 (54) defines it to include “the creation of a lien,” “the retention of title as a security interest,” and “each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with” property or an interest in property. Granting your brother a mortgage on the house to secure an old family loan is a transfer. So is handing over the title to a car.
Ninety days for strangers, one year for family
The look-back period is where this becomes a family problem rather than a commercial one. Section 547 (b) (4) sets two windows: ninety days before the petition for an ordinary creditor, and “between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider.”
“Insider” is defined at § 101 (31). For an individual debtor it includes a “relative of the debtor,” and “relative” in turn means, under § 101 (45), an “individual related by affinity or consanguinity within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree.” That sweeps in parents, children, siblings, grandparents, aunts, uncles, nieces, nephews, and the equivalents by marriage and adoption. It is not a narrow category, and it does not require any business relationship at all.
So the credit card company you paid four months ago is beyond reach, and your mother, paid on the same day, is not. The asymmetry is deliberate: insiders are presumed to know when the debtor is sinking, and the Code assumes they will act on that knowledge.
There is a quieter distinction inside the two windows that matters a great deal in practice. Section 547 (f) provides that “the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.” The presumption covers ninety days. It does not cover the rest of the insider year. For a payment made eight months before filing, the trustee has to prove you were actually insolvent at the time, and under § 547 (g) the burden of proving avoidability under subsection (b) rests on the trustee. That is a real defense in a case where the trouble arrived suddenly.
The small-payment floor, and the figure that is commonly wrong
Not every payment is worth chasing, and the Code says so. Section 547 (c) (8) bars avoidance “if, in a case filed by an individual debtor whose debts are primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than $600.” Section 547 (c) (9) sets a separate floor for a case whose debts are not primarily consumer debts.
Here a caution is in order, because this is the sort of number that gets copied from stale articles. The two floors behave differently. Section 104 (a) of the Code lists the dollar amounts that the Judicial Conference adjusts for inflation every three years, and § 547 (c) (9) is on that list while § 547 (c) (8) is not. The consumer floor is therefore the $600 printed in the statute. The business-case floor is not the $5,000 printed in the statute: it has been adjusted repeatedly, most recently by a notice dated January 30, 2025, published at 90 Fed. Reg. 8941 and effective April 1, 2025, which raised it to $8,575. Section 104 (c) adds that an adjustment does not apply to cases commenced before it takes effect, so the figure that governs is the one in force on your filing date. If you are relying on a dollar threshold, check the current notice rather than any article, this one included.
Note also what the floor measures: the aggregate value affected by the transfer. Six separate $200 payments to the same relative on the same debt are not six transfers safely under the line.
The defenses that actually get used
Section 547 (c) is a list of exceptions, and three of them do most of the real work in consumer cases.
The contemporaneous exchange exception, § 547 (c) (1), protects a transfer the parties intended as a contemporaneous exchange for new value and that was “in fact a substantially contemporaneous exchange.” If your brother handed you $3,000 for the transmission and you handed him the title that afternoon, that is an exchange, not a preference.
The ordinary course exception, § 547 (c) (2), protects a transfer in payment of a debt “incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee” where the transfer itself was made in that ordinary course or “according to ordinary business terms.” This is why routine monthly payments are usually safe and a sudden lump-sum payoff usually is not. The pattern is the point. Years of the same $250 on the first of the month look ordinary; a single payment clearing the whole balance three weeks before filing does not.
The subsequent new value exception, § 547 (c) (4), reduces exposure where the creditor gave the debtor new unsecured value after the payment. A relative who was repaid $2,000 in March and then lent $1,500 again in April has a materially smaller problem than the arithmetic first suggests.
Two more are worth naming. Section 547 (c) (7) protects “a bona fide payment of a debt for a domestic support obligation” — child support and maintenance are not preferences. And § 547 (b) itself requires the trustee to act “based on reasonable due diligence in the circumstances of the case and taking into account a party’s known or reasonably knowable affirmative defenses under subsection (c),” which means a trustee is not supposed to send the demand letter without having considered whether the defenses apply.
Gifts are a different statute, and a longer reach
Paying a debt is one thing. Giving property away is another, and it is governed by § 548 rather than § 547. Under § 548 (a) (1) the trustee may avoid a transfer made “on or within 2 years before the date of the filing of the petition” where the debtor either “made such transfer . . . with actual intent to hinder, delay, or defraud” a creditor, or “received less than a reasonably equivalent value in exchange for such transfer” while insolvent or while being pushed into insolvency by it.
Read the second branch carefully, because it is the one that catches well-meaning people. It requires no intent whatsoever. Deeding the cottage to your daughter for a dollar, putting an adult child on the title to the house, or signing the car over to a nephew are all transfers for less than reasonably equivalent value. If you were insolvent when you did it, the trustee can undo it, and your daughter’s own good faith does not change that.
Section 548 (a) (2) carves out charitable giving: a contribution to a qualified religious or charitable entity is not treated as a transfer under the reasonably-equivalent-value branch where the amount “does not exceed 15 percent of the gross annual income of the debtor for the year in which the transfer of the contribution is made,” with a further allowance for giving consistent with the debtor’s established practice. A tithe is not a fraudulent transfer.
Wisconsin’s own clawback, and why two years is the wrong number
Here is the part that is specific to a Wisconsin case, and the part most national articles miss. The trustee is not confined to § 548’s two years. Section 544 (b) (1) lets the trustee “avoid any transfer of an interest of the debtor in property . . . that is voidable under applicable law by a creditor holding an unsecured claim.” Applicable law here means Wisconsin law, and the trustee may stand in the shoes of any one actual unsecured creditor and exercise that creditor’s state-law rights for the benefit of the whole estate.
Wisconsin law on this subject was rewritten recently and the vocabulary changed with it. By 2023 Wisconsin Act 246, chapter 242 — long known as the Wisconsin Uniform Fraudulent Transfer Act — was revised and renamed. Section 242.13 now provides that “this chapter may be cited as the Uniform Voidable Transactions Law,” and the operative sections speak of transfers that are “voidable” rather than fraudulent. If an article or a form still calls this the Wisconsin Uniform Fraudulent Transfer Act, it predates the current statute.
The chapter runs along the same two tracks as the federal statute. Section 242.04 (1) reaches a transfer made “with actual intent to hinder, delay or defraud any creditor,” or made without receiving a reasonably equivalent value in the circumstances described in § 242.04 (1) (b), and it does so whether the creditor’s claim arose before or after the transfer. Section 242.04 (2) then provides that in determining actual intent “consideration may be given, among other factors,” to eleven listed circumstances — the traditional badges of fraud. Among them are whether “the transfer or obligation was to an insider,” whether “the debtor retained possession or control of the property transferred after the transfer,” whether the transfer was “disclosed or concealed,” and whether, “before the transfer was made . . . the debtor had been sued or threatened with suit.” Deeding the house to a relative and continuing to live in it hits several of these at once.
Section 242.05 (1) covers the constructive case for a creditor who was already owed money: a transfer without reasonably equivalent value while the debtor was insolvent or made insolvent by it. And § 242.05 (2) is Wisconsin’s own insider-preference rule, which has no counterpart in most states’ general law — a transfer is voidable as to an earlier creditor “if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time and the insider had reasonable cause to believe that the debtor was insolvent.” The Wisconsin Court of Appeals has described this subsection as addressing “preferential transfers,” a category “based on bankruptcy principles,” aimed at the advantages insiders hold when they know the debtor’s finances. Beck v. BidRX, LLC, 2018 WI App 61, 384 Wis. 2d 207, 918 N.W.2d 96. The court also held that a transfer to an insider is not enough by itself; the payment must have satisfied an antecedent debt.
Now the timing, which is the practical payoff. Section 242.09 sends you to § 893.425, and that section sets three different clocks. An actual-intent claim under § 242.04 (1) (a) must be brought “not later than 4 years after the transfer is made . . . or, if later, not later than one year after the transfer or obligation is or could reasonably have been discovered by the claimant.” A constructive claim under § 242.04 (1) (b) or § 242.05 (1) must be brought within four years. But a claim under § 242.05 (2), the insider-preference provision, must be brought “not later than one year after the transfer is made.”
Put the pieces together and the exposure is not what the federal statute alone suggests. For a gift or a bargain sale, the reach-back in a Wisconsin case is effectively four years through § 544 (b) and § 242.04, not the two years in § 548 — and for an actual-intent transfer the discovery rule can extend it further. Anyone counting on two years of distance from a transfer is counting on the wrong statute.
Two Wisconsin wrinkles cut the other way, in the debtor’s favor. Section 242.01 (2) defines “asset” to exclude property “to the extent it is encumbered by a valid lien,” and § 242.01 (2) (bm) excludes property “to the extent it is exempt under s. 815.18.” A transfer of property that was exempt in your hands, or that was fully encumbered, is largely outside the chapter. And under § 242.02 (3), a debtor “generally not paying the debtor’s debts as they become due other than as a result of a bona fide dispute is presumed to be insolvent” — a presumption that runs against the debtor, and one worth knowing before you characterize your own finances.
What happens to your relative, and to you
If the transfer is avoided, § 550 (a) lets the trustee recover “the property transferred, or, if the court so orders, the value of such property” from “the initial transferee of such transfer or the entity for whose benefit such transfer was made.” That is your mother. Section 550 (b) protects a later transferee who took for value, in good faith, and without knowledge of the voidability — but it protects the second transferee down the chain, not the person you paid directly. Your mother’s own good faith is not a defense to a § 547 preference.
Wisconsin’s chapter is structured the same way. Section 242.08 (1) gives a good-faith, reasonably-equivalent-value defense against an actual-intent claim under § 242.04 (1) (a), and § 242.08 (4) protects a good-faith transferee to the extent of the value it gave. Section 242.08 (6) then supplies three defenses specific to the insider-preference rule: the transfer is not voidable to the extent the insider gave new value afterward, or if it was “made in the ordinary course of business or financial affairs of the debtor and the insider,” or if it was made under a good-faith effort to rehabilitate the debtor. Those mirror the federal exceptions closely enough that the same facts tend to answer both.
When your relative pays the money back, she does not simply lose it. Section 502 (h) provides that a claim arising from the recovery of property under § 550 is determined and allowed as though it had been filed in the ordinary way — she becomes an unsecured creditor in your case for what she returned, sharing in whatever distribution there is. That is usually cold comfort, since the whole premise is that unsecured creditors are being paid cents on the dollar. And § 502 (d) gives the trustee leverage: the court “shall disallow” the claim of an entity from which property is recoverable under § 550 unless it has turned the property over.
Two consequences land on you rather than on her, and they are the ones worth planning around.
The first is exemptions. Section 522 (g) permits the debtor to exempt property the trustee recovers, but only on conditions — among them that “such transfer was not a voluntary transfer of such property by the debtor” and that “the debtor did not conceal such property.” Writing your mother a check is the definition of a voluntary transfer. So money clawed back from a voluntary prepetition payment comes into the estate for the creditors, and you generally cannot claim it as exempt even if you could have protected the same cash had you simply kept it. The payment converted protected property into distributable property. That is the quiet cost of the decent gesture.
The second is the discharge itself. Section 727 (a) (2) (A) directs the court to deny a discharge where the debtor, “with intent to hinder, delay, or defraud a creditor or an officer of the estate,” has transferred, removed, destroyed, mutilated, or concealed property of the debtor “within one year before the date of the filing of the petition.” An ordinary preference carries no such risk; intent is not an element of § 547 and a plain repayment is not a fraud. But a transfer designed to put an asset beyond a creditor’s reach is a different matter, and the sanction is not merely the loss of the asset. It is the loss of the discharge — which is to say, the loss of the entire point of filing.
How long the trustee has to act
The trustee’s own clock is not open-ended. Section 546 (a) provides that an action under § 544, § 547, or § 548 may not be commenced after the earlier of two things: the later of two years after the entry of the order for relief or one year after the appointment of the first trustee where that appointment falls inside those two years; or the time the case is closed or dismissed. The nesting matters — the trustee gets the longer of the two periods, but closing the case cuts it off regardless. Section 550 (f) adds that a recovery action must be brought within one year after the transfer is avoided, or by the time the case closes. A case that closes without the trustee acting ends the exposure.
The practical rule
The rule that follows from all of this is unglamorous and nearly absolute: disclose the transfer, and decide the timing with your lawyer before you move the money, not after.
The schedules and the statement of financial affairs ask about prepetition payments to creditors and to insiders, and about property transferred outside the ordinary course. Answering those questions completely is not optional, and it is the one thing that reliably separates a preference — an inconvenience with a known remedy — from a concealment, which puts the discharge at risk. A disclosed insider payment may cost your relative the money. An undisclosed one can cost you the case.
And the timing is frequently fixable in advance. A payment can wait until the insider year has run. Chapter 13 sometimes absorbs the problem differently from chapter 7, because the recovery flows through a plan rather than a liquidation. The furnace loan can sometimes be documented in a way that brings it within the ordinary-course exception instead of outside it. None of these options survive the moment the check clears. The commonest version of this problem is not a debtor who tried to cheat; it is a debtor who tried to be fair, in the wrong order, without asking first.
Talk to a New Berlin bankruptcy attorney
Carson Law Office handles chapter 7 and chapter 13 bankruptcy in New Berlin, Waukesha County, Milwaukee, West Allis, Wauwatosa, and the surrounding communities — including preference and clawback exposure under 11 U.S.C. § 547 and § 548, and transfers reachable under Wisconsin’s Uniform Voidable Transactions Law. If you have repaid a relative, transferred property, or put someone else’s name on a title in the last several years, that is something to raise before you file, not after the trustee writes to them. Call (262) 860-8932 or email christopher@carsonlawoffice.com. You can also read more about our bankruptcy practice, our post on whether you will lose your house or your car, our post on the means test, and our post on tax debt in a Wisconsin bankruptcy, or contact us to arrange a consultation.
Carson Law Office · 15350 West National Avenue, Suite 101, New Berlin, WI 53151 · (262) 860-8932
This article is general information about federal bankruptcy law and Wisconsin law and is not legal advice. Statutes are amended from time to time, the dollar thresholds discussed above are adjusted periodically and apply according to the date a case is commenced, and every case turns on its own facts. Speak with an attorney about your own situation.