Posted on April 28, 2017 in Asset Protection

Selling or giving away something innocently, without trying to hurt your creditors, could still give the trustee the right to get it back.

“Fraudulent Transfers” without Bad Intentions

It’s confusing: so-called “fraudulent transfers” don’t have to be fraudulent. They can be innocent of any bad intentions by you, the debtor.

In our last blog post we got into “fraudulent transfers” that DO come with bad intentions. Those involve the giving away or sales of assets WITH the “actual intent to hinder, delay, or defraud” creditors. (Section 548(a)(1)(a) of U.S. Bankruptcy Code.) Basically, we’re talking here about hiding or disposing of assets to prevent the paying of debts. “Fraudulent transfer” law allows the bankruptcy trustee to undo, or “avoid,” that gift or sale. The person who got the asset from the debtor before bankruptcy has to give it to the trustee, and then to be distributed to the debtor’s creditors in bankruptcy.

Continue Reading ››

 Posted on April 26, 2017 in Asset Protection

Selling or giving away something to prevent your creditors from getting it may make a certain amount of sense but could be very dangerous.

Good and Bad Intentions

Last time we introduced “fraudulent transfers.” We said that in spite of how the term sounds, a fraudulent transfer does not necessarily happen with bad intentions. You could innocently sell or give something away during the two years before filing bankruptcy. That could still be a fraudulent transfer, as long as that sale or gift satisfied a number of conditions.

However, a fraudulent transfer CAN come with bad intentions. Today we cover those made “with actual intent to hinder, delay, or defraud” creditors. (Section 548(a)(1)(a) of U.S. Bankruptcy Code.)

Hiding Assets from Creditors

We can generally agree that in normal circumstances legally owed debts ought to be paid. The law backs this up with legally established procedures for collecting debts. Some of those procedures are centuries old. The law of fraudulent transfers is one of those. It goes was back to the Fraudulent Conveyances Act of 1571 in England, nearly 450 years ago.

Continue Reading ››

 Posted on April 24, 2017 in Bankruptcy Law

“Fraudulent transfers” have similarities to “preferences.” They are both worth understanding because they can cause unnecessary hassles.

Asset Timing in Bankruptcy

Your Chapter 7 trustee usually mostly focuses attention on determining whether any of your assets are not “exempt.” You get to keep all exempt assets. If there are any assets that are not exempt, the trustee has the right to take them, liquidate them, and pay the proceeds to your creditors. However, in most consumer Chapter 7 cases all the assets are exempt so the trustee takes nothing. The debtor gets to keep everything.

In this process, the trustee is only interested in what you own at the moment you file your bankruptcy case. This timing gets quite precise. For example, what counts is the amount of actual cash you have on hand at that moment of bankruptcy filing. Same thing with the balance in your checking account(s) at that moment, and all your other assets. The amount of cash or money in your accounts the day before or the day after usually doesn’t matter. What matters is what you had at the moment of filing, with these and all your other assets.

Continue Reading ››

 Posted on April 21, 2017 in Bankruptcy Law

You can put a “preferential payment” to work for you if you owe a “priority” debt—back child or spousal support, or recent income taxes.

Our last blog post was about how you can benefit from a “preference” in your bankruptcy case. A “preference” is a payment you made to a creditor (voluntarily or involuntarily) during the 90-day period before filing (or sometimes the 1-year period), which, under certain circumstances, your trustee can force the creditor to repay. The creditor doesn’t pay the preferential payment back to you but rather to your bankruptcy trustee. The trustee then distributes that money among your creditors. The way you benefit is when most of that money going to a debt that you need and want to be paid.

Last time our focus was on how a payment to a creditor qualifies to be a “preference.” That is, what it takes for the trustee to be able to force that creditor to give back the payment. Today is about how that money goes to where you want it to go.

Continue Reading ››

 Posted on April 19, 2017 in Bankruptcy Law

Make your bankruptcy trustee work for you by retrieving your recent payments to, or garnishments by, creditors--to your benefit.

Our last 4 blog posts have been about “preferences” in bankruptcy. The last two have focused on how your trustee’s “preference” claim could cause significant problems, and how to avoid them. But you can also use “preference” law to your advantage. Today we get into how to do so.

The Big Picture

Imagine that you are under serious financial pressure, maybe thinking of filing bankruptcy, maybe trying hard to avoid doing so. Then you get threatened with a lawsuit by a debt collector if you don’t start making payments on its debt. So you somehow squeeze some precious money out of your way-overstretched budget and pay a chunk of the debt. Or instead you were sued earlier and the creditor just grabbed a big part of your paycheck or checking account. Maybe you’ve had to suffer through a number of these payments or garnishments.

Continue Reading ››

 Posted on April 17, 2017 in Bankruptcy Law

Prevent your trustee from giving you a big headache if you paid a debt to a friend or relative during the year before filing bankruptcy.

In our 3 blog posts last week we explained “preferences” in bankruptcy. In particular, in our last one on Friday we showed how a “preference” claim by your trustee could cause you a significant problem. Doing something seemingly sensible before filing bankruptcy could cause trouble during your bankruptcy case. Today is about how to avoid that trouble.

Avoid the Risk of a “Preference”

A “preference” is a payment you make to one creditor in preference to your other creditors when you’re on the brink of filing bankruptcy. Specifically, it only involves payments made during the 90-day period before that filing. That period expands to the full year before filing if the creditor you pay is a friend, relative, or business associate.

Those 90-day and 1-year look-back periods are fixed, non-extendable. There is a straightforward way to take advantage of this. Just don’t pay anything you owe to a favored creditor during these periods of time. If you owe anything to a friend or relative, don’t pay them anything if there is any possibility that you’ll be filing bankruptcy in the following year. And don’t pay any other favored creditor during the 90-days before filing.

Continue Reading ››

 Posted on April 14, 2017 in Bankruptcy Law

Avoid the frustrating surprise of having one your friendly creditors be challenged by your bankruptcy trustee with a preference action.

In the last two blog posts we’ve introduced “preferences.” Today we get into what we’re calling dangerous or bad preferences, ones you’d rather avoid.

Preference Law

A preference is a payment you make to a creditor before you file bankruptcy which the creditor must repay after you file bankruptcy. However, the money that you paid to the creditor does not come back to you. Instead it goes to your bankruptcy trustee, who then distributes it to your creditors under a strict priority system.

To be clear, most pre-bankruptcy payments you make to your creditors are not preferences. There are a number of timing and other requirements for a payment to be considered a preference. In fact, most consumer bankruptcy cases don’t have ANY preference issues.

Continue Reading ››

 Posted on April 12, 2017 in Bankruptcy Law

Preferences can be dangerous but can also present potential opportunities. So although not all that common, they’re worth knowing about.

A "Preference” in Bankruptcy

In our last blog post we explained what a “preference” is in bankruptcy. It’s what it sounds like it would be. It’s a payment you make to a creditor before filing bankruptcy in preference to your other creditors. Then, after you file your bankruptcy case, under certain circumstances your bankruptcy trustee has the power to require the creditor to return the money you paid.

However, that money is not returned to you but instead to your “bankruptcy estate.” That’s the term for the pool of all your assets as of the moment you file your bankruptcy case. To the extent those assets are not “exempt,” or protected, the trustee distributes those assets among your creditors. Any money returned by a creditor as a preference is part of that pool of potentially distributed assets.

Continue Reading ››

 Posted on April 10, 2017 in Bankruptcy Law

Your trustee might be able to require a creditor to pay the trustee money you’d paid the creditor. Sometimes that’s good; sometimes not.

What’s a Preference in Bankruptcy?

Preference law allows a bankruptcy trustee to require a creditor that you paid during a certain period of time before you file bankruptcy, under certain conditions, to pay that money “back” to the trustee. The creditor you paid, voluntarily or not, would have to give up that money. The trustee would then take and divvy up the money among all the creditors. Your creditor may or may not get any of that distributed money. It would usually get either none or just a small percentage of what it had to give up.

Section 547(b) of the U.S. Bankruptcy Code lays out the 5 elements of a preference. It’s a payment paid or asset transferred:

Continue Reading ››

 Posted on April 07, 2017 in Discharge of Debts

In our example of the adversary proceeding about whether a debt gets discharged, here is the bankruptcy court’s ruling on the matter.

This is the last of six blog posts in a series showing how a dischargeability dispute gets resolved in bankruptcy court. Check out the last five posts about all the steps in the “adversary proceeding” so far, including the trial itself. In the last one, lawyers for the creditor and the debtor gave their closing arguments. Today the judge announces and explains her ruling.

The Judge’s Opening Remarks

At issue in this adversary proceeding is whether the debtor, Marshall, can discharge his debt to the creditor, Heather. The loan was made five years ago for $35,000; its current balance is about $21,000. The purpose of the loan was for Marshall to start a car repair business. Heather is Marshall’s aunt. At Heather’s request, Marshall completed a loan application and signed a promissory note. As she instructed, after completing and signing these documents Marshall delivered them to Heather’s lawyer. The loan was not secured by any collateral.

Continue Reading ››