One of the biggest concerns you have when filing for bankruptcy is denial of your request. This is one of the primary reasons people filing for bankruptcy choose to work with an attorney – it decreases the chances of a denial or risking losing assets. Unfortunately, requests can be denied for a variety of reasons, even if the person filing did nothing intentionally wrong. One example of this is asset transfers, which can jeopardize your bankruptcy if it occurred within certain time periods.
First, if you are considering bankruptcy, even if you won’t be filing for some time, you need to know what an asset transfer is and what makes it problematic. An asset transfer occurs when you transfer ownership of your property to someone else. There are many instances in which this is perfectly acceptable, but if you are considering bankruptcy, the timing of any asset transfers you make will be scrutinized by the bankruptcy court. You are not allowed to protect or hide anything you own by transferring ownership of it to someone else when filing for bankruptcy.
In most cases, improper asset transfers fall into one of three categories: transferring property into someone else’s name, selling assets for less than fair market value, and repaying family loans.
Transfer of Property
If in the last two years you transfer ownership of property to anybody outside of the ordinary course of business, a bankruptcy trustee can reclaim the property and use it to repay your debts. That’s the best case scenario. It’s also possible your bankruptcy could be denied due to what could be considered a fraudulent conveyance. A fraudulent conveyance is a transfer of property intended to avoid or hinder creditors.
This two year period relates to the bankruptcy code time periods, but bankruptcy trustees can also use state law in looking at what can be considered a fraudulent conveyance. For example, in New York, the law against fraudulent conveyances can look back up to six years. In New York, if you made a transfer of property for less than fair market value within the last six years, then filing a bankruptcy might not be the right path and it’s an issue that needs to be discussed and explored very carefully.
You can read more about transfer of property and other basic bankruptcy issues here.
Sale of Assets
It’s also improper to sell your assets for less than their market value. Though it might seem wise to sell your property and put the money toward paying your debts, doing so shortly before filing for bankruptcy can get you into trouble. If you have recently sold any assets, make sure you let your bankruptcy attorney know. He or she will review the value of the assets and determine if it will be a problem when you file. As mentioned above, under state law, like in New York, transfers or sales for less than fair market value would fall under the law against fraudulent conveyances and carry a look back period of six years. This is why a full discussion and extensive interview process is required to avoid any missteps in your bankruptcy filing.
Repayment of Family Loans
Finally, you need to consider how the bankruptcy court will prioritize your debt. If you have paid back money borrowed from a family member, the court has the authority to reclaim this money and distribute it to other creditors deemed a higher priority than family debt obligations. It is important to disclose any payments you have made to your bankruptcy attorney before you file. If the payment was to a family member, they will be considered an insider and the look back period is one year. Any of these payments can be considered a preferential treatment of a creditor and recaptured.
Though there are many aspects of bankruptcy that are cut and dry, there are also many things that can be confusing for those filing. This is one of the reasons it’s important to work with someone who is on your side and experienced and can guide you through the filling process.
If you would like to know more about asset transfers or you need someone to help you begin the process of filing for bankruptcy, contact the law office of Frank J. LaPerch, PC at 845.942.5500 for more information.