Consequences To Consider If You Transfer Money Before Bankruptcy

If you know how bankruptcy works, you may already have a game plan for yours in mind. There are several options you will have that could affect the outcome of how long your case lasts, which assets you get to keep, and more. And if you already know you intend to file Chapter 7 bankruptcy, you’re probably looking forward to no longer having unsecured debts like credit cards and medical bills. But if you were planning strategies like transferring money and assets to your friends and family to avoid losing them in bankruptcy, you should reconsider. Planning your bankruptcy isn’t illegal, but bankruptcy fraud is. So if you have given gifts, repaid family members, or transferred them assets in recent history, you need to review your situation with an experienced Phoenix bankruptcy attorney. If you live in Arizona, our team may be able to help. We offer free consultations that are 100% free and confidential. You can choose between in one of our convenient office locations, or over the phone. When you’re ready to get started, fill out our online form or call 480-833-8000.

Transferring money before bankruptcy in Arizona

What Are Preferential Payments?

Not all debts are to strangers or corporations, like credit cards and payday loans. Some debts are owed to the people closest to us. But debts to friends and family don’t get special treatment in bankruptcy. Paying back family members in favor of your other creditors before your petition is filed is against the Bankruptcy Code. The trustee will be on the lookout for payments to regular creditors totaling $600 or more in the 90 days before you file. For insiders like friends and relatives, the lookback period is 1 year. If the trustee finds excess preferential payments, they may “claw back” the payment from the recipient. This can be embarrassing, and create unexpected financial issues for your loved ones. If possible, you might be able to wait to file your bankruptcy until these preferential payments are no longer an issue. But if you have creditors about to foreclose your home, repossess your vehicle, garnish your wages, etc., you might need to file your case quickly and do your best to explain what might happen to those you made preferential payments. Your Tucson bankruptcy attorney can help you figure out how to describe the situation to them.

What Are Fraudulent Transfers?

Your bankruptcy trustee will be on the lookout for fraudulent transfers dating 2 years back from your bankruptcy filing, and 10 years for transfers to self-settled trusts. A wide array of actions can count as a fraudulent transfer in bankruptcy. For example, some have tried to avoid surrendering assets in bankruptcy by transferring an asset’s title to a loved one and maintaining ownership, or transferring it to them altogether.

Others have sold a valuable asset to an insider for far less than the fair market value. The transfer is considered fraudulent if two factors are met: (1) the property was transferred for less than its “reasonably equivalent value,” and (2) the person was insolvent at the time of the transfer or became insolvent afterwards. When deciding what an asset’s reasonably equivalent value is, the court will consider the asset’s fair market value, whether the transfer was in the ordinary course of business or in promise of future business, and any other offers received on the asset. Your interpretation of these factors might differ from the bankruptcy trustee. Make sure you tell your bankruptcy every detail of these transactions so that they can best determine how the trustee is likely to proceed. If you hide facts from your attorney, there will be less your attorney can do to help you if the bankruptcy trustee catches your prior fraudulent transfers.

Who Is Going To Find Out?

You may be thinking that as long as none of the people involved in your preferential payments or fraudulent transfers don’t rat you out, you will be safe in your bankruptcy case. However, there is a court-appointed attorney known as the bankruptcy trustee who will be reviewing every detail of your bankruptcy petition.

About 10-15 days after filing your bankruptcy petition, you can expect a letter from your bankruptcy trustee requesting additional documents to support the information you provided to the court. Some of the documents that the trustee might request include tax returns, bank account statements, credit card statements, vehicle registrations, and more. The trustee will pore over these documents to find any trace of evidence that you completed an improper transfer or payment before your bankruptcy. And if you fail to cough up the documents that the trustee requests, it’s likely that your case will be dismissed. Make sure you comply with the trustee’s requests, and contact your Chandler bankruptcy attorney if you have any questions about them.

What Happens If I’m Caught?

There are several consequences you could face if the trustee catches you making preferential payments or fraudulent transfers that range in severity. They include:

  • Delays in your case.
  • Your case being dismissed, which could either be temporary if you re-file or may be permanent.
  • The trustee may seize any funds or assets from their recipient.
  • The trustee may require that you reimburse the bankruptcy estate for the value of your fraudulent transfers or preferential payments.
  • You could remain liable for certain debts after your case has been discharged.
  • You could be charged with bankruptcy fraud, which is a felony punishable by hundreds of thousands of dollars in fines and years in prison.

Is The Trustee Really Going To Come After Gifts?

In general, you don’t need to worry about the $20 gift card you sent your cousin for their birthday, or the scratchers you sent to your mom. But gifting a loved one $1,000 for their wedding might draw the trustee’s attention. You will need to make sure that you haven’t given any one person gifts totaling more than $600 in the past 2 years, or your case could be in trouble. You should disclose all gifts in your Statement of Financial Affairs, question 13. Your bankruptcy attorney will let you know what the probable outcome of any prior gifts will be in your case. You may need to warn friends and family members about the possibility of the trustee attempting to regain any gifts you gave them.

High Quality Representation To Avoid All The Possible Issues In Your Bankruptcy Case

With all that’s on the line, you need to make sure that your finances fit square within Bankruptcy Code requirements. These change year to year, and vary from state to state. You need an attorney who stays up to date on bankruptcy law and will make sure that there are no issues with your bankruptcy petition. If cost is the thing holding you back from hiring a bankruptcy attorney, don’t let that stop you from at least contacting Zero Down Bankruptcy Lawyers. Your initial consultation is always free. And if you qualify, you can file your Chapter 7 bankruptcy for ZERO DOLLARS DOWN. Unlike other attorneys who offer payment plans, this is paid after your petition is filed. Paying for a bankruptcy attorney can be much easier when you no longer have wage garnishments, interest payments, and more. To get your case started, fill out our online form or call 480-833-8000 for your free consultation.


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