Transfers Before Filing Bankruptcy

In order to hide assets from the bankruptcy court, transfers to other parties are often contemplated. If you understand the legal system mindset that often catches people unfamiliar with the proceedings off-guard, you will understand and avoid pitfalls of trouble. One of the most important concepts to understand is that whenever a court asks a lawyer or a party or a witness to say or do something on which the court will rely, it usually asks for the information under the penalty of perjury.

Likewise, when the Bankruptcy Court asks a party who files a Petition for Bankruptcy to submit a list of all assets, for example, this requirement will be under penalty of perjury. Making a transfer of oneís property just before the Bankruptcy is filed may cause a party to be in danger of running afoul of this penalty of perjury provision. Needless to say, many Federal Court Judges become upset at the prospect of someone asking for help from the Court and not being truthful to the Court.

This does not mean that one cannot transfer property and then declare bankruptcy. However, to avoid any problems, a person making such a transfer should consult with an attorney about the transfer to determine if it would be a proper transaction to undertake.

In Bankruptcy Court, there are several types of transfers that can raise problems. Two of these include a fraudulent conveyance, and a preferential payment(s) to creditors. If a Judge were to be apprised of either of these two transactions, they could be set aside and penalties might ensue. While a person may believe that it is unlikely the court could find out, it is often others close to the process that may intentionally or inadvertently demonstrate the problems.

For example, assume that a person paid off creditor A except for $200. Creditors B and C are owed $4,000 and $5,000 respectively. In a Court Petition, all three Creditors are listed. A personís credit report pulled by Creditor B two months prior to the Petition being filed shows Creditor A was owed $5,000 by the debtor. Creditor B could simply bring this to the Courtís attention, possibly even inadvertently, and this would demonstrate that the debtor paid off Creditor A in a preferential transaction.

In short, transfers before the filing of a Petition in Bankruptcy are going to be subject to much scrutiny. One should exercise great care in this area, and do not hesitate to contact legal counsel for assistance.

There are many means of managing debt, of which bankruptcy is only one. If you decide to utilize the Bankruptcy Court, do so with great care and, if possible, in consultation with experienced legal counsel. Should you choose Bankruptcy, be sure to further consider your options before filing your Petition.

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