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If you are considering bankruptcy, it is important to understand how your actions in the years leading up to the bankruptcy filing can affect the outcome of the bankruptcy case. Fraudulent transfers of property; preferential payments to friends or family members; unexplained losses of assets; and excessive use of credit cards are some of the most common issues that arise in consumer bankruptcies. Consulting with an experienced bankruptcy attorney can help to avoid some of these problems. If you have questions about what to do when filing for bankruptcy, or to determine if you are eligible to file for bankruptcy, it is important to first consult with an experienced bankruptcy lawyer on Long Island.
Contact the law firm of Andrew M. Doktofsky, P.C. at (631) 673-9600 for a free consultation about how to properly prepare for bankruptcy. Call today to determine what your options are when filing for bankruptcy throughout the areas of Suffolk County and Nassau County, New York.
If you are considering filing for bankruptcy in New York, it is important that you do not repay friends, family members or business associates for debts owed to them. These types of people are considered “insiders.” Any payments made to them can be recovered by the bankruptcy trustee if the payments were made within one year prior to the filing of the bankruptcy petition, but only if the total repaid during the one year period exceeded $600.
According to 11 U.S.C. § 547(b) of the Bankruptcy Code, a preferential payment is defined as:
The goal of bankruptcy is to treat all unsecured creditors fairly. Payments made to insiders that are also unsecured creditors, within one year of filing of the bankruptcy petition, would be unfair and are considered preferential.
If an individual does make a payment to a family member, friend or business associate, within one year prior to the bankruptcy filing, the bankruptcy trustee will demand a return of the money from the insider who received the payment. If the insider refuses to return the payments to the trustee, the trustee can sue the recipient in bankruptcy court for return of the money to the bankruptcy estate.
If repayment was made to an insider, it is possible for the insider creditor to give a new loan to the debtor. This will serve to undo any preferential payments that were made to that insider. However, it is imperative to first consult with an experienced bankruptcy attorney to determine if this is advisable in your particular situation.
Additionally, in Chapter 7 bankruptcy proceedings, a debtor can repay insiders after the bankruptcy petition has been filed. However, this repayment option is only available in Chapter 7 bankruptcy proceedings. In Chapter 13 bankruptcy proceedings, insiders are paid at the same time as other unsecured creditors through the Chapter 13 plan.
It is also important to remember when filing for bankruptcy in New York to refrain from incurring any additional debt in the time period leading up to the filing. This means:
Under certain circumstances, it may be advisable to obtain financing to purchase a vehicle prior to filing for bankruptcy. However, consult with a bankruptcy attorney before doing so.
Debtors who incur additional debt in the period leading up to the bankruptcy filing, or who incur excessive credit card debt with no intention of repaying it, can face a denial of a bankruptcy discharge for bad faith, according to § 707 of the Bankruptcy Code. Further, according to the Bankruptcy Code, cash advances and luxury purchases may be presumed to be non-dischargeable under both Chapter 7 and Chapter 13 bankruptcy proceedings. The following cash advances and luxury purchases are deemed to be nondischargeable under 11 U.S.C. § 523(a)(2)(C):
Transferring assets prior to filing for bankruptcy can have detrimental consequences:
A fraudulent transfer is defined as:
The most common scenario involves a debtor transferring their interest in a home to their spouse or child and not receiving any payment in return. It is important to remember that it is not necessary that the transfer be made with intent to defraud creditors. In fact, there could have been a legitimate reason for the transfer, such as for estate planning purposes. However, in the bankruptcy context, a bankruptcy trustee need only show that the transfer was made for less than fair value within the six-year period preceding the bankruptcy filing. Under these circumstances, a Chapter 7 trustee can bring an action against the recipient of the property to recover the property for the benefit of the debtor’s creditors.
Of critical importance is that once an asset is transferred, the debtor can no longer claim an exemption in the property transferred. For instance, the homestead exemption in Nassau and Suffolk counties is $165,000. This means that a debtor can file a Chapter 7 bankruptcy and keep their home if the equity in their interest in the home does not exceed $165,000 (if the house is jointly owned, the equity can be up to $330,000). For example, let’s say a house is owned jointly by a husband and wife. If ownership of the house was transferred from the two of them to the wife only, and the then the husband filed for bankruptcy, the trustee could set aside the transfer, sell the house, and use the proceeds to pay the husband’s creditors. The wife would be paid for her share of the house. This is assuming the husband files for bankruptcy within six years of the transfer. Again, the reason for the transfer is not important. If the husband did not receive fair value for his share of the house, and he was insolvent at the time of the transfer (or the transfer made him insolvent), then it is considered a fraudulent transfer.
The same principles are true for any asset, including motor vehicles, bank accounts, jewelry, or other personal property. Keep in mind that “removing your name” from a joint bank account or investment account is generally considered a transfer of one half of the value of the account. As such, a bankruptcy trustee can recover the amount transferred.
When filing for bankruptcy in New York, it is most important to remember to tell the truth throughout your bankruptcy proceeding. First, you must be honest with your attorney. Your attorney cannot properly advise you unless you are honest and disclose all information. Furthermore, lying under oath on your bankruptcy petition, or at the meeting with the bankruptcy trustee, is a federal offense. This can lead not only to a denial of a bankruptcy discharge, but also to criminal prosecution. It is imperative to be completely honest and fully disclose all relevant information. You must disclose all assets, including all jewelry (including engagement rings), consumer goods and electronics, motor vehicles, pension and retirement funds, and financial accounts.
A common issue is that of “off the books” income. If you are working and earning income, or have earned income in the two years preceding the bankruptcy filing, it must be disclosed on your bankruptcy petition. This is true regardless of whether you reported the income on your tax returns or whether your employer withholds payroll taxes from your pay.
If you are paid commissions, you must disclose all sales for which you have a commission pending. Pending sales commissions are considered an asset. The debtor may be able to claim the commission as exempt, depending on the amount of the commission, and whether the debtor is claiming a homestead exemption. (Use of the homestead exemption would restrict the debtor’s use of other exemptions that would exempt commissions). Or, it might be prudent to delay a bankruptcy filing until after the commissions are received. This will allow the debtor to receive the money and use it for necessary expenses prior to the bankruptcy filing.
The Bankruptcy Court for the Eastern District of New York - This court serves the Eastern District of New York, including the counties of Nassau, Suffolk, Brooklyn and Queens, and is a unit of the U.S District Court. All bankruptcy proceedings in the Eastern District of New York are filed in this court.
Chapter 5 of the United States Bankruptcy Code – Title 11 of the United States Code, which is also known as the Bankruptcy Code defines the federal rules and laws regarding bankruptcy. This link is directly to section 547 of Chapter 5, which explains preferences and insiders in bankruptcy.
Chapter 7 of the United States Bankruptcy Code – Title 11 of the United States Code, which is also known as the Bankruptcy Code defines the federal rules and laws regarding bankruptcy. This link is directly to section 707 of Chapter 7, which explains reasons that a bankruptcy case may be dismissed or converted to a chapter 11 or 13 bankruptcy case.
Chapter 5 of the United States Bankruptcy Code – Title 11 of the United States Code, which is also known as the Bankruptcy Code defines the federal rules and laws regarding bankruptcy. This link is directly to section 523 of Chapter 5, which defines exceptions to a discharge in bankruptcy proceedings, including non-dischargeable luxury goods or services and cash advances.
Contact the law firm of Andrew M. Doktofsky, P.C. today for a free consultation about what not to do when considering bankruptcy throughout Suffolk County and Nassau County, New York. Andrew Doktofsky is an experienced Long Island bankruptcy attorney who will advise you on the proper procedures to follow in order to achieve a favorable outcome in your bankruptcy proceeding. Call (631) 673-9600 for a free consultation about how to prepare for bankruptcy.