If you are thinking about filing for bankruptcy, your Newburgh bankruptcy lawyer will advise you to avoid certain transfers of property and money in the months prior to filing your bankruptcy petition. One type of transfer that can cause problems for a debtor occurs when the debtor transfers property to family members or friends for free or for less than the property is worth within two years before filing. This type of transfer may be considered a fraudulent attempt to hide the property from creditors and could result in your bankruptcy case being dismissed and even criminal penalties.
Loan payments you make to family members or close friends within a year before filing the bankruptcy petition can also cause problems for you and the payment recipient. Often a person will turn to family or friends for a loan when in financial difficulty. When the person decides to file for bankruptcy, he or she may want to repay the loan so that it will not be discharged. Called a preference or preferential transfer to an insider, the loan repayment can be voided by the bankruptcy trustee. The friend or family member who received payments within the year before the bankruptcy filing will be required to return the payments to the debtor’s bankruptcy estate. If the payments are not returned, the trustee may sue the family member or friends to recover them.Preferential transfers are not limited to payments to family members and friends. Any payments made to a creditor who is not a family member within 90 days before filing for bankruptcy may be a preferential transfer. For example, paying off a large credit card balance within 90 days before filing would probably be a preference.
Preferential transfers are voidable to ensure that all general unsecured creditors are treated similarly. In a preferential transfer, the debtor takes money out of the debtor’s bankruptcy estate that should be available to all creditors, and makes the money available only to the debtor’s preferred creditor. This leaves less money to distribute to the other creditors during the Chapter 7 liquidation. During a bankruptcy, the debtor’s creditors are paid in accordance to their order of priority, not in accordance to their personal relationship with the debtor. For example, if the debtor owes the government money for unpaid taxes, the government will receive payment prior to the debtor’s unsecured creditors.
To determine if a transfer made within the one year or 90 day look back period is preferential, the bankruptcy trustee will look at a number of factors. It is not necessary for the trustee to show fraudulent or dishonest intent on the debtor’s part. First, the trustee will examine whether the debtor was insolvent at the time the debtor made the transfer. In addition, the bankruptcy trustee will consider how much the creditor received because of the preferential transfer in comparison to the amount the creditor would receive as part of the Chapter 7 liquidation. If the creditor received more by receiving the preferential transfer, the bankruptcy trustee will likely void the transfer.
You may be wondering about paying your mortgage, car loan, alimony, and child support in the months before filing. Mortgage and car payments made in the period before filing for bankruptcy usually are not preferences because secured creditors are not getting more than they would get in a Chapter 7 bankruptcy. That is because secured creditors generally have the option of foreclosing or repossessing the property or getting the value of the property through the bankruptcy. Payments for alimony, maintenance, or support made pursuant to a court order also are not considered to be preferential transfers. In addition, if you are individual with primarily consumer debts, the trustee may not pursue preferential transfer claims if the total amount is less than $600. If your debts are not primarily consumer debts, the trustee may not pursue a preferential transfer claim if the total amount is less than $5,850. And there are other exceptions as well.
Contact us today to discuss your financial situation and whether bankruptcy is right for you. Tell us about all payments and asset transfers you have made recently, especially transfers to family and friends, so that we can prepare to deal with them. To arrange for a free consultation, complete the case submission form on this page, email us, or us.
Areas Served:We handle bankruptcy cases through the mid-Hudson Valley including these counties and communities. Counties: Orange, Dutchess, Rockland, Westchester. Communities: Arlington, Beacon, Haverstraw, Middletown, Monsey, Mount Kisco, New City, Newburgh, Ossining, Peekskill, Poughkeepsie, Spring Valley, Stony Point, Suffern, West Haverstraw.