No, You Can’t Pay Back/Repay Your Mom (or Dad or Business Partner) Before Filiing Bankruptcy – Bankruptcy Transfers

Posted by on Feb 1, 2012 in Bankruptcy Topics, Creditor's Rights in Bankruptcy | 0 comments

What’s are problematic bankruptcy transfers?  People considering bankruptcy often have assets in excess of the bankruptcy exemption limits.   If those assets are cash or cars, I am often asked if they can just transfer title or write a check to a family member.  In almost all cases, the answer is no – because that is deemed a fraudulent transfer in bankruptcy.  It doesn’t matter your intent – even if your intentions were admirable, the act of doing so is considered fraudulent where equivalent value is not received in return by the person or persons contemplating bankruptcy.

Another issue has to do with what are called preference transfers.   So a person considering bankrutpcy owes his/her mother (or father or brother etc.) money.   This person has too much cash in the bank, equity in the home or cars, or even a business.  So this person contemplates repaying the family member before the filing of the bankruptcy by writing a check, or granting a deed of trust on his/her home, or transferring title to the car as a form of repayment.   That is also not allowable in bankruptcy due to the nature of preference transfers.   Repaying your family member or anyone “preferentially” in lieu of other creditors is inapprorpriate under bankruptcy law in almost all circumstances.  Because a fundamental concept of bankruptcy has to do with the equitable distritbution of funds to all creditors, the bankrutpcy world believes such repayment should have been spread equally among all creditors, not just to a particular creditor of your choosing, whether or not that creditor is a family member or not.

In such situations, a person or business contemplating bankruptcy must consult a bankruptcy attorney to understand what is and what is not allowable BEFORE any action is taken.   In short, don’t jump out of the plane before making sure the parachute is securely attached.



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