A bankruptcy filing is heavily scrutinized by the trustee. If he or she notices any discrepancies in your documentation or suspicious financial dealings, your filing could be in jeopardy. If you have recently made a payment to a creditor or you transferred an asset, it is possible that the trustee could force the return of the payment or asset. If you have recently taken either action, here is what you need to know.
Why Does It Matter?
When you file for bankruptcy, the court wants to be sure that you are not taking that action to simply hide assets from creditors. Part of that is ensuring that you did not transfer an asset to a family member or other associate to hide it and that you did not make a payment to certain creditors.
For instance, if you paid back a loan from your parents and then filed for bankruptcy, this could look suspicious.
In a Chapter 7 bankruptcy, debt repayments in the 90-day period prior to filing for bankruptcy could be called into question. The same holds true for any payments or transfers to insiders, such as family members, in the year prior to filing.
What Can the Trustee Do?
The trustee has the option of getting the money back from your creditors. He or she can also request the return of any assets that were transferred. This is known as a clawback.
The trustee has the right to request the return because bankruptcy law is about helping you with your debts while ensuring that creditors are treated fairly. As a result, the trustee has the power to request the payment or assets and then evenly distribute them to your creditors.
What If Fraud Is Suspected?
If you innocently made the payments or transferred the assets without the intent of committing fraud, the trustee will simply recall the payments or assets. However, if the trustee believes that you did so in an attempt to hide assets, it is possible that your bankruptcy filing could be dismissed.
There is also the possibility that you could face criminal charges for fraud.
To avoid this, if you have made any payments or transfers that could be considered suspicious, it might be in your best interests to postpone your bankruptcy. If you have not made the payments or transfers yet, consider filing for bankruptcy first and letting the trustee decide what is best.
Work with a bankruptcy attorney, such as Richard S. Ross - Bankruptcy Attorney, to avoid any issues with your bankruptcy filing.