Going to court for your first meeting of creditors?

What are they going to ask me?, you wonder.

My bankruptcy clients imagine a quiz on the contents of their bankruptcy papers.

Or worse, an inquisition on why they needed to file bankruptcy.

That’s not likely.  The first meeting of creditors is much more likely to be a snooze.

Jay Fleischman set out a very comprehensive list of questions a Chapter 7 trustee might ask at your bankruptcy hearing.

Let me add my rules for answering those questions.

1.  Listen to the question

Just because you’ve read Jay’s list and think you know what’s coming, listen to the trustee’s question, all the way to the end.

First of all, it’s only polite.  Second, you want to make sure that you know what the trustee wants to know.

Your answer is being recorded.  You want to make sure you are answering the question that the trustee asked.

2.  Answer truthfully

Honest disclosure is the price of getting a bankruptcy discharge.  This is not the time to be cute or tell anything less than the truth.

You are answering under oath.  You are subject to the penalties of perjury if you are intentionally are less than honest.

3.  Be brief

Answer the question that the trustee has asked, truthfully, in as few words as possible.

Don’t explain, don’t justify, don’t ramble.

Just answer the question.

If the trustee needs to know more, he can ask a follow up question.

Usually, the trustee is just trying to make a record that he has done his job.

He has a list of cases he has complete.  Don’t make his day any longer by volunteering more than he wants to know.

4.  Don’t guess

If you don’t know the answer to a question, say so.  If the answer is honest, it’s perfectly OK.

Perhaps your counsel can help.  Maybe there are documents that provide the information.

Don’t pretend to a level of certainty if you don’t really know.

All’s well

If you’ve been diligent about getting your attorney all the requested information, chances are the first meeting of creditors will be the last, and you’ll be on your way to a fresh start.

Image:  © Innovated Captures – Fotolia.com

Trying to spend down cash before filing bankruptcy?

It’s time to talk about the float.

Not the root beer float, though that would be more fun.

The bank “float”:  the period between writing a check and it clearing your bank.

(We’ll talk about what to spend on before filing bankruptcy, too).

When you file bankruptcy, your schedules are supposed to show what you own on that day.  For checking accounts, that’s the balance that the bank shows.

If you’ve written a bunch of checks right before filing, checks still floating out there on their way to the bank make your bank balance higher than the balance in your checkbook.

Why does the float matter

The money in your bank account on the day you file belongs to your bankruptcy estate. Now, it may be fully exempt or it may be too little to interest a trustee in administering it, but that’s another story.

In the eyes of the law, it’s yours, even though you’ve written directions to the bank to pay some of it out to the holders of your checks.  Those directions (your checks) just haven’t arrived at the bank.

A bankruptcy trustee can demand that you pay over to the estate that balance, even though the money has long since been paid out by the bank, who knew nothing of the bankruptcy case when it honored your check.

Bummer.

Spending before filing

If you are in the lucky position of having more cash on hand than you can exempt in your bankruptcy case, you may want to spend that money on things you’ll need after bankruptcy.

My list of purchases/expenditures that generally pass muster with bankruptcy trustees include

• Stocking your kitchen
• Repairing your car
• Paying insurance premiums
• Refilling prescriptions
• Getting needed health or dental care
• Replacing aged appliances

But if you pay for them with a check, right on the eve of bankruptcy, you run the risk that the checks haven’t cleared the bank when your case is filed.

? More on cleaning up your finances before bankruptcy

Eliminate the float

Instead of paying by personal check, you can pay cash for your purchases.  Be sure to keep a record of what you bought so you can trace the money for the trustee.

Or, you can buy cashier’s checks from the bank, and make your purchases with certified funds.  The funds to buy a cashier’s check come immediately from your account at the bank.  A cashier’s check is a check on the bank’s checking account, not yours.

By using cashier’s checks, you spend down your funds and eliminate the risk that your bank balance will be artificially high on the day you file your bankruptcy case.  And that’s good.

More on planning for bankruptcy

What about the tax refund?

Do you know about the secret bankruptcy exemptions?

What belongs in your bankruptcy schedules

Interviewing a bankruptcy lawyer

Image courtesy of Flickr & boo_licious.

If an asset isn’t titled to you,  it does not have to be disclosed in a bankruptcy filing.

I hear it and see it in action again and again.

If it isn’t titled to you, it will be “safe” from the bankruptcy trustee and from creditors.

And yet it is wrong.

Wrong, wrong, wrong.

Still, people transfer titles to cars and cash and quitclaim their homes to friends before bankruptcy, thinking that’s smart.

No.  It’s both dumb and dangerous.

Not only does putting your assets in the names of friends and family expose them to a lawsuit to recover the property, in extreme situations it puts your bankruptcy discharge at risk.

Actions taken to “hinder, delay or defraud” creditors are grounds for denial of discharge under 11 U.S.C. 727.

What could delay your creditors more than shedding assets without getting anything in return?

Transferring asset unlawful since Elizabeth I

For well more than four hundred years, the law has contained prohibitions on fraudulent transfers.

A transfer of an asset by one who has debts constitutes a fraud on creditors if

1) the transfer is for less that fair consideration; or

2) was made for the purpose of putting the asset beyond the reach of creditors; or

3) leaves the person transferring the asset with less capital than reasonably necessary to conduct their business.

So, a transfer is actionable if it’s a gift; you intended to hide the asset; or the transfer left you broke.

Consequences of fraudulent transfer

The usual remedy against the person who gets the asset is  an order requiring the return of the asset or a money judgment in the amount of its value.

The bankruptcy code has a statute empowering the recapture of transfers made within two years of filing.

In addition, the bankruptcy trustee has the rights of the debtor’s creditors under state law to recovery any property that the debtor wrongfully transferred.  In California, creditors have four years to recover fraudulent transfers.

Putting your assets in someone else’s name

So, a really quick and effective way to screw up your bankruptcy is to put your assets in the name of your mother, your kids, or your buddy, and conceal the fact from your attorney.

Sign the statement of affairs under penalty of perjury, hiding the transfer, and you are a long way toward making a real muck of things.

Yet people again and again ask “what if I put it in someone else’s name?”.

As long as they ask me, I get a chance to say “Don’t do it”.

And they have a chance to get a discharge.

More

What your bankruptcy lawyer can’t tell you

Bankruptcy’s 90 day rule

Do it yourself bankruptcy

 

Queen E. The First courtesy of Wellcome and Wikimedia.

The divorce was over.

The assets were divided by a final judgment.

The house would go to Him, and he would pay Her $75,000 on stated terms.

It was the end of a miserable stretch in their lives.

Only it wasn’t.

Before anyone recorded the judgment of dissolution (that’s Californian for “divorce”), She filed bankruptcy.

And He found out about Bankruptcy Code  §544.

Powers of a bankruptcy trustee

When a bankruptcy is filed, all of the debtor’s assets become part of the bankruptcy estate.

OK, in our situation, She no longer owned an interest in the house:  it was awarded to Him.  When She filed bankruptcy, the house wasn’t hers.

But the bankruptcy code gives the Chapter 7 trustee powers to avoid certain transfers of property and to bring assets back into the estate that weren’t there when the case was filed.

The news coverage of the Madoff case  calls this “clawing back” assets.

One of those powers is the status of a bona fide purchaser of real estate for value without notice, a BFP, in legal parlance.

Public record incomplete

Because the deed to the family home still showed on the public record as being owned by  “He and She, husband and wife”, her bankruptcy trustee could argue that an innocent purchaser, who didn’t know about the divorce, could buy from Her something she really no longer owned.

That BFP had no notice that the house was awarded to  Him.

So, because no one had yet updated the public record, He had to fight for the house all over again.

Because this happened in California, the trustee had two arguments to make. One was the claim that that the house remained community property, and therefore all of the equity in the house was property of the estate.  Yikes!

Second, the trustee could, and did, argue that as a BFP, he could sell Her half of the house for the benefit of her creditors.  And scarier still, the bankruptcy code allows the trustee to sell jointly owned property against the will of the co owner.

Bankruptcy take-away

Divorcing parties and their attorneys can draw a couple of lessons from this tale.

1. Divide property promptly.   As long as property is community property, it is exposed to being sucked into the bankruptcy estate should either spouse or former spouse file bankruptcy.
2. Appearances count  Bankruptcy trustees are entitled to rely on record title in making the BFP argument.  Get property division decisions into the public record.
3. Co owners exposed  Anytime two parties are joint owners, the bankruptcy of one party can force a sale of the property, convenient or not.
4. Marital settlement agreements enhance estate  Assets acquired through a marital property settlement within 6 months of a bankruptcy filing go to creditors.  MSA’s are an exception to the bankruptcy estate as a snapshot of the day of filing.

In this case, the ultimate strength of the trustee’s arguments were never tested.

The amount of debt in the bankruptcy case coincided neatly with the amount He was to pay Her, and fortuitously, a refinance bought the trustee out without triggering a sale.

It’s not always so neat.

 

Image:  Fengyuan Chang

You’re looking at bankruptcy official form B9.

It arrived in your mail because someone has filed bankruptcy and listed you  as a creditor on the schedules of a newly filed bankruptcy case.

Most likely, the debtor owes you money or you have an open claim of some sort against the bankrupt.

Your rights against the debtor have just changed.

Bankruptcy law, federal law, is now prepared to upend the debtor/creditor relationship.

You need to find all the information crammed into this single page so you can determine what, if anything, to do next. (Double click the image and you’ll get an enlarged version; hit the back arrow to come back here.) [Read more…]

You must “tell the truth” on your bankruptcy schedules, bankruptcy advice sites intone.

Most of us shrug that off: we can’t imagine deliberately lying to a court.

But carelessness about bankruptcy schedules abounds.

If you give the bankruptcy process just a lick and a promise, the resulting schedules aren’t truthful, not because of lies, but because they aren’t complete.

Carelessness has consequences

When the debtor doesn’t take the time to consider all his legal rights and intangible assets;  when he makes assumptions about what the law covers; and when he includes only the debts that represent trouble, he makes trouble for himself.

Bankruptcy schedules that are less than accurate allow judges and prosecutors to inquire as to the debtor’s motives. That’s not a good place to be as a debtor. [Read more…]