Itasca Bankruptcy Lawyer On What Not To Do before Filing

Is there anything I should not do if I am contemplating bankruptcy?  There are a couple of things that should not be done in anticipation of bankruptcy, especially if the timeframe is short; say, within a year to six months before the filing of the bankruptcy. 

The first and foremost thing you should not do is begin transferring assets.  This is known in the trade as pre-bankruptcy estate planning.  The bankruptcy code itself allows for the recovery of assets that are transferred to friends or family members, otherwise known as insiders, within two years of the filing of the bankruptcy.  

Under the Illinois Fraudulent Conveyances Act, that period is extended to four years.  Because the federal court sits in the state of Illinois, the federal court is allowed to use the Illinois statute.  The rule underneath the Illinois Fraudulent Conveyances Act is that if the transfer occurred at a time that the debtor was insolvent, or if as a result of the transfer the debtor became insolvent, then the trustee can recover that asset for the benefit of creditors.  Many people believe that if they simply quitclaim or sign a title over to a friend or a family member that will avoid collection by either the bankruptcy court or creditors, and nothing could be further from the truth. 

The other thing that should not be done as well is to pay creditors large sums of money, especially if they are friends or family members.  This is known as either a preference, which is something that is done within 90 days of the filing of the bankruptcy, or an insider preference if it’s paid to a friend or family member within, again, a year before the filing of the bankruptcy.  The court is trying to balance the rights not only between creditor and debtor, but also among all creditors, and to transfer assets to preferred creditors, meaning those people who are insiders, is contrary to the stated purpose of the bankruptcy code. 

Another thing that the client would want to avoid doing is paying off creditors in large sums of money.  You can catch up mortgages, you can pay your back taxes, you can pay a car note, but what you don’t want to do is send the credit card company money or send the doctor bills money.  It’s a case by case analysis in many instances, but what you’re doing, especially with the credit cards, is you’re throwing good money after bad.  In the case of the mortgage or the car, it is unlikely that a trustee would see to recover those sums, and certainly in the case of income taxes, it’s almost unheard of for a trustee to seek the recovery of those funds from either the Illinois Department of Revenue or the Internal Revenue Service, but it’s still not a wise move if you’re contemplating filing bankruptcy.

 Itasca Bankruptcy Lawyer