Believe it or not, when you file for bankruptcy, especially a Chapter 7 bankruptcy, it can have a major impact on your life. For this reason alone, it is best to be completely truthful with your bankruptcy attorney about all aspects of your life.
The reason that the timing of your bankruptcy filing matters is due to two similar concepts. Those are what are called preferential transfers and presumed fraud. For the purpose of this article I am making them simple, but in legal practice they are broader. Preferential transfers deal with property or money that the debtor transferred to another person or company within 90 days prior to the debtor filing for bankruptcy. The word transfer here means payment, loan, exchange, or giving away of money or property.
To whom a transfer is made and for what reason are two very important questions. There is a bankruptcy definition for what is known as an insider. More often than not that is a family member. Yet there are cases where that was not the case. It is up to your attorney to research whether any exceptions to this rule would apply in your case.
Preferential transfers most often come up when a debtor transfers property to a family member before filing for bankruptcy. And more often than not, this transfer happens before the debtor ever consults with a bankruptcy attorney. Finally, these transfers can often create more problems than they solve for the debtor and the family member. So please don’t think that you as a potential bankruptcy debtor can and should give, loan, sell, or otherwise transfer property to a family member or a favorite creditor, then go out and file for bankruptcy.
Instead…if you are possibly facing the eventual filing of bankruptcy, go ahead and get legal advice now. Timing is everything and especially bankruptcy timing of preferences.
Presumptive fraud deals with the use of credit cards within 90 days of filing for bankruptcy. Use of credit cards means either buying something by charging for it. Or another way is accepting by cashing checks that were sent to you from a credit card company. When you do this, the general rule is that such use is presumed to be fraudulent on your part. So the credit card company only has to show when the use occurred relevant to the date you filed for bankruptcy. Then, you have to pay back whatever you charged or used.
The exception to this rule is if the use of the charge cards was for goods or services that are reasonably necessary for the support or maintenance of the debtor and or his dependents. The amount of such use will increase every about every 3 years. It is currently about $800 that is safe to use. You will have to speak to a bankruptcy attorney for further advice.
Generally presumptive fraud matters are solved by the credit card lawyers sending your attorney a letter explaining their position with proof of your credit card statements. Whereas preferential transfers involve the Chapter 7 bankruptcy or United States Trustee taking action to retrieve the transferred asset or equivalent cash from the recipient of the transferred item.