Be Careful Transferring Cash or Assets Prior to Filing for Bankruptcy

Pocketing company money. Cropped shot of a businessman placing money into his pocket

When your financial circumstances have led you to the point of considering bankruptcy, it’s important to be aware of how the entire process works – even before you file. Bankruptcy courts are meticulous in scrutinizing filers to ensure nobody defrauds the process.

The court will take an overview of a filer’s assets and income in order to decide whether they qualify for Chapter 7, Chapter 13, or neither. One way certain individuals attempt to subvert the qualification process is by moving money or assets around before filing. Bankruptcy courts have a look-back window of two years to review transfers and transactions.

The court refers to these transfers as “fraudulent transfers.” A fraudulent transfer in a bankruptcy case is a transfer of money or assets made in the months leading up to a bankruptcy filing.

Some people come to our law firm telling us “my friend told me I could do this before filing!” Even if you never intended to defraud the process, your eligibility will still be at risk because of transfers within this timeline. Whether the transfers made you insolvent or you were insolvent at the time of the transfers, they are still considered fraudulent (this is referred to as constructive fraud).

If you did not intentionally defraud the system but received less than equal value for the use or transfer of assets then the transfer can be considered fraudulent. This includes situations where you pay someone else’s debt instead of taking care of your own (i.e. paying your child’s college tuition instead of paying off your own debts). Other examples of transfers that can be considered fraudulent include:

  • Giving away assets
  • Selling assets for less than market value
  • Transferring assets to someone else but retaining sole use and control over the assets
  • Excluding a transfer from required disclosures

These transactions can be made by the debtor or by a self-settled trust run by the debtor.

The complexities of bankruptcy cases necessitate the retention of an experienced bankruptcy attorney. At Velazquez Consumer Law, we understand the reality of bankruptcy. These are difficult decisions brought on by difficult circumstances, but you still have options.

Working with our team as soon as you start considering the bankruptcy process allows us to clarify what transfers are allowed and which would be considered fraudulent by the court. If you are thinking about filing for bankruptcy, contact us BEFORE you start the process. Our team provides solutions to Aurora and the Western Suburbs of Chicago.

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