If you are contemplating a bankruptcy claim, you probably know this process includes complex regulations balancing debt relief for the petitioner and fairness to the creditors. The court entrusts a bankruptcy trustee with reviewing details and carrying out regulations during proceedings. It’s vital to understand when, how and why the trustee examines your financial life and to note actions to stay clear of during the time preceding your bankruptcy petition.
Understanding the Bankruptcy Estate
When you file for a fresh start in bankruptcy court, you understandably hope to retain resources for daily living. Your creditors, on the other hand, want to regain as much of their investment as possible. The bankruptcy trustee evaluates actions you took in the 90 days previous to filing to ensure all allowable items get included in the bankruptcy estate, which is the pool of your assets used to pay the creditors.
If creditors include family members, friends or business colleagues, the court considers them insiders. The period for reviewing transactions involving these persons expands to one year before filing the bankruptcy claim.
Since most individuals research and assess their situation before deciding on bankruptcy, this 90-day window, or one-year period for insiders, helps preclude any financial maneuvering. The trustee looks for attempts to reduce assets included in the bankruptcy estate or increase debts discharged through the bankruptcy process.
Avoiding Steps That Endanger Your Bankruptcy Petition
You must avoid certain actions before you file bankruptcy, or you may face serious consequences. Repercussions can include clawbacks, which reverse the action, denial of your bankruptcy petition or even legal prosecution if fraud is suspected.
1. Putting Money or Assets in Someone Else’s Name
Transferring financial accounts, property or vehicles to someone else may seem reasonable, such as changing a vehicle title when your child is the actual owner, but doing this can jeopardize your proceedings. Make certain to refrain from these actions:
- Removing your name from a joint bank account, title or deed
- Selling your share of a business or eliminating your name as an owner
- Selling real estate
- Giving a gift of assets to your children or other parties
- Taking money from your bank account and putting it in another person’s account
- Transferring assets to any other person’s name
2. Putting Someone Else’s Money into Your Account
Do not deposit money that belongs to someone else into your account. For example, a friend saving for a spouse’s surprise gift may ask you to hold the money temporarily. Also, do not mix funds from your business with your personal account. It is difficult to prove money in your account does not actually belong to you. It can also prevent you from passing the means test if you file for Chapter 7 bankruptcy.
3. Showing Favoritism to One Creditor Over Another
Some creditors probably showed more patience and leniency than others as you dealt with financial problems. You might like to reward congenial creditors by paying them before you file for bankruptcy. It’s vital to resist this temptation. The trustee can claw back the payment, resulting in additional problems for your creditor and possible repercussions for you.
4. Continuing To Use Credit Cards
If possible, stop using all credit cards. In particular, avoid unnecessary acquisitions over $650. The trustee will not include these amounts in the debts discharged by the bankruptcy process.
5. Filing Lawsuits or Arranging Future Payments
Upcoming payments already owed you in the 90-day period before you file become part of the bankruptcy estate. This could include settlements, tax refunds, a delayed sales bonus or even an inheritance. If you expect any significant future payments, consult an attorney before filing for bankruptcy.
6. Neglecting Required Counseling and Meetings
The bankruptcy court requires credit counseling before you file and a debtor education course afterward. During the bankruptcy process, you will receive notification of a meeting with your creditors. You must attend, or your claim can be dismissed.
Numerous pitfalls await unwary filers on the way to petitioning for bankruptcy. If you are considering this solution for your financial problems, contact an attorney at Brent George Law at 805-494-8400 for timely information and advice.