Know the Consequences of Sending Gifts, Payments, and Transfers to Family Before Filing for Chapter 7 Bankruptcy
Posted on Monday, December 22nd, 2014 at 2:33 pm
Once you file for Chapter 7 Bankruptcy, the bankruptcy code provides a trustee to check into any assets that were transferred for up to a year before you filed. The trustee will be looking for “gifts” and “favorable payments.” A favorable repayments can show a preference in paying one debt over another. A gift can show that a “fraudulent conveyance” was made. When a favorable payment or gift is paid to a family member or “insider”, the bankruptcy code is really harsh. Favorable payments and gifts to insiders can be looked at for up to two years before the bankruptcy was filed in most cases. In Kentucky this can be extended to 5 years by the trustee using what is called a “strong arm” provision that allows trustees to use state law to go after preferences and fraudulent transfers.
Examples of Why You Need to be So Careful…
- Borrowing From a Close Relative for a Business – The borrower with the business intended to pay this relative back in a lump sum from a retirement account, but then it began looking like bankruptcy was imminent. This would create a double problem. The first problem is that exempt funds that would have ridden through the bankruptcy would have been converted to non-exempt funds. The second would be that the trustee pull that large lump sum payment back into the estate from the relative. From those reclaimed funds, the trustee would pay himself a percentage and the rest would have gone to unsecured creditors.
Result… The retirement would be gone and the relative would remain largely unpaid (they would be treated the same as any other unsecured creditor and receive cents on the dollar).
- Securing a Personal Residence but Having a Considerable Amount of Unsecured Debt – Someone with considerable unsecured debt has their personal residence secured to the hilt, but they owned several acres in another state free and clear of any lien. – It was important to this person to retain the out-of-state land because they wanted to give the land to someone else to keep it in the family.
Result… Viewed as a fraudulent conveyance and the land would be taken and sold by the trustee with proceeds going to unsecured creditors.
These examples highlight the importance of sitting down with a northern kentucky bankruptcy lawyer practitioner who can help you with a comprehensive plan. Lawrence & Associates can provide swift legal action to help protect you and your family.
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Regardless of the reasons that brought you to financial distress, filing for bankruptcy does not make you a bad person. In fact, the government created bankruptcy in order to help people recover from unmanageable financial problems. At Lawrence & Associates, we help our clients understand how bankruptcy laws are made to protect them and will allow for a brighter financial future.
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