- The job of the court trustee during a Chapter 7 bankruptcy is to liquidate the debtor's assets to repay creditors. If the trustee finds that assets were liquidated within 90 days of filing for bankruptcy, the trustee can enact its avoiding powers. The U.S. Bankruptcy court website states that "the trustee's avoiding powers include the power to: set aside preferential transfers made to creditors within 90 days before the petition; undo security interests and other pre-petition transfers of property that were not properly perfected under nonbankruptcy law at the time of the petition; and pursue non-bankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law."
In effect this means that the court trustee will look for any suspicious transactions made within the preceding months of filing for bankruptcy. If any transfers of property were made to avoid having them liquidated during the bankruptcy or if any preference was given to pay off any one creditor, the debtor can be denied the right to file for bankruptcy. The court trustee can also undo these transactions and set them aside to be liquidated if the bankruptcy case continues. A creditor must perfect a lien against a property it has loaned money on by filing documents in the state and or county the property is located in. If the creditor fails to perfect the lien, the court trustee can liquidate the property by enacting its avoiding powers. - Many people think of selling assets before filing for bankruptcy because they are afraid the bankruptcy court will sell them anyway. However, this is not always true, even in a Chapter 7 or liquidation bankruptcy. Several items such as a car to get to work in, or your home, can be declared exempt from the bankruptcy. Bankruptcy exemptions and amounts vary from state to state so it is best to check and see what can be determined exempt in the state you live in.
- The Fuente Legal websites states that almost 70 percent of all bankruptcy fraud cases involve a debtor trying to hide assets from the bankruptcy court trustee. A common bankruptcy fraud scheme is for the debtor to sell an asset to a family member for a ridiculously low amount to keep the bankruptcy trustee from gaining control over the asset. This is bankruptcy fraud and can have devastating consequences for the debtor involved. If the bankruptcy court trustee discovers a suspicious transfer of assets, it can terminate the bankruptcy filing and press criminal charges. However, each state has its own look-back time periods for reviewing asset transfers, and it is best to consult your attorney to review other rules concerning value received and attempts to defraud.
- Due to the new bankruptcy laws passed in 2005, to file for a Chapter 7 bankruptcy, a debtor must take and pass a means test in order to file. This test takes the debtor's last six months of gross monthly income, and uses a formula to determine if he should be able to file for a Chapter 7 bankruptcy. If a debtor sells off any assets during the preceding six months, the cash from those sales will have to be listed as gross income. By listing the cash amounts from selling assets, a debtor could inadvertently sabotage his right to file a Chapter 7 bankruptcy and be forced into filing a Chapter 13 bankruptcy, or be denied the right to file for bankruptcy at all.
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