Paying Off Loans from Family Members
Payments to family members are prohibited under the bankruptcy code and can be recaptured as far back as two years prior to the date of filing. This can have devastating consequences if the family member who loaned the money is desperately relying on the repayment. Whether the loan is from a retired parent, an elderly aunt, or a sibling with children to feed, the trustee will not have sympathy and must apply the Code objectively. Equally, if the petitioner gives money away to family within the two years prior to filing bankruptcy, those funds will also be recaptured. The best practice is simply not to borrow from or loan to family members if there is any potential for you filing for bankruptcy.
Ignoring Assets or Obligations from a Divorce Decree
Quite often, people view items granted in a Marital Settlement Agreement/Divorce Decree as “earned” from the marriage and don’t realize that these assets are subject to the authority of the bankruptcy court. Assets are assets and, while exemptions may exist to protect some assets, all assets must be listed in the petition. Failure to disclose any asset can have harsh consequences, especially if equity exists. Even more damaging is the failure to list a payment obligation required under a divorce decree. Any obligations to a spouse, former spouse, or child cannot be discharged. These obligations not only include spousal support and child support, but items such as the assumption of vehicle loans and other debts pursuant to a divorce decree.
Paying Off a Vehicle Loan
Many people are under the misconception that there is an unbridled right to keep a vehicle in bankruptcy if it is paid off. While tempting as it may be to funnel cash into paying off a car loan before bankruptcy, the reality is that inflated payments made within 90 days of filing for bankruptcy may be recaptured. More importantly, most exemptions for automobiles are typically no greater than $4,000. So, if you’ve paid down your vehicle and have significant equity in it, odds are good that the trustee will seize the asset, sell it, and apply the proceeds toward your outstanding debt. Not only will you have lost the vehicle but also the cash that was put into paying it off at the last moment before filing.
Below Market Sales
Selling assets for below market prices just to unload them or make the sale appear legitimate and obtain the item back later is prohibited under the bankruptcy code. If the transaction is discovered, it will likely be unwound and the asset brought back into the bankruptcy estate. If the debtor lies about such a transaction on the petition, and it is later discovered, federal charges for bankruptcy fraud could be brought. The best option is to be truthful and attempt to use the exemptions as provided for under the Code to retain the desired asset.
The worst action a soon-to-be petitioner can take is to hide assets. Failing to disclose investments, hiding valuable antiques or jewelry, and asking others to hold items on your behalf are just a few of the fraudulent, sheltering activities that can lead to dismissal of the case (at a minimum) and possible criminal charges for bankruptcy fraud. While taking steps to shelter hard earned assets may seem tempting, do not give in to the temptation! If the asset is that valuable, you are much better off working within the Code exemptions to protect them, considering the filing of a Chapter 13 bankruptcy, which would allow you to keep the asset, or finding an alternative to filing for bankruptcy.
The types and amounts of permitted asset exemptions for your particular state are clearly stated in the Bankruptcy Code. Exemption amounts frequently change so relying on the Internet in place of sound legal advice is not a good option. Above all, do not attempt to conceal, transfer or exclude assets from a bankruptcy court. The potential consequences for you are far worse than losing the assets you have attempted to protect.
Contact our office at (630) 406-5440 and request a consultation with Attorney Lawrence W. Lobb to determine whether your assets are exempt or not.
- Lawrence W. Lobb
- Drendel & Jansons Law Group
- 111 Flinn Street
- Batavia, IL 60510
- (630) 406-5440
- (630) 406-6179 fax
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