Traps & Pitfalls

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  • Improperly Paying Creditors Prior to Filing Bankruptcy

    Answer is: The bankruptcy system is designed to ensure the full disclosure of what are called “preferential payments”. Preferential payments are payments to any one creditor exceeding $600 in the 90 days before you filed bankruptcy. For relatives and business partners, the look- back period is longer.

    The concept of the “preferential payment” is that a person “on the eve” of bankruptcy should no longer be free to chose which of their creditors to repay. Otherwise, people would pay their family and business partners to the detriment of the other creditors that didn’t get paid.

    To “right the wrong”, the Code authorizes the Chapter 7 trustee to demand that the creditor cough-up the money and put it back on the table to be distributed fairly among all the creditors.

    Many people – often those who are not represented by experienced bankruptcy attorneys, fall into a trap by failing to disclose a preferential payment or understand its different consequences in Chapter 7 and in Chapter 13. Part of your attorney’s job is to keep you out of trouble by identifying preferential payments and understanding how the Chapter 7 trustee and Chapter 13 trustee might react.
  • Improperly Transferring Assets Prior to Filing Bankruptcy

    You must disclose any asset that you have sold, given away, or otherwise transferred prior to the filing of the bankruptcy. Transfers to family members and business partners receive the closest scrutiny.

    Selling assets to friends or family members before you file bankruptcy is generally allowed so long as you receive fair value in exchange. But simply “putting an asset in someone else’s name” while you go through bankruptcy is considered a fraud, and trustees have ways of discovering such things. An experienced bankruptcy attorney will counsel you against fraudulent transfers and will have experience to predict how the various trustees are likely to respond to the situation.
  • Failing to Disclose an Asset

    Many people think that they don’t need to disclose all their assets – especially those that they received as gifts or assets that are titled in someone else’s name. Intentionally failing to disclose an asset is bankruptcy fraud. It could easily disqualify you from receiving a discharge and could result in criminal prosecution. All assets must be listed.

    Fortunately, however, most assets are protected by exemption laws that allow you to keep the assets provided that you properly assert the exemption. Exemptions are why only about one person in twenty has to forfeit an asset to a trustee. Part of you’re your attorney’s job is to navigate you through the legal complexities and identify assets of interest to the trustee and take steps to protect them.
  • Failure to Disclose a Debt

    Some people believe that they can simply keep any credit cards not listed in the bankruptcy. They figure they will just keep on paying it. This, however, is incorrect. All debts must be listed. You are free to repay any debt after the bankruptcy, but intentional failure to list a debt is illegal. Pull your own credit report and bring it to your appointment – this will not necessarily contain all your debts but it’s a great start.
  • Running-up a credit card shortly before you file.

    Anytime you borrow money with no intention or ability to repay it’s considered a fraud. This means that once you have decided to file bankruptcy, stop using the credit cards. Cash advances and luxury purchases within 70 days prior to filing bankruptcy send up red flags and create a legal presumption of fraud. For this reason, we often recommend delaying the bankruptcy filing until after the 70 day period expires. The timing of the bankruptcy is often quite important.

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