Often times when a person decides to enter bankruptcy they have been through an extended tumultuous period. That period can devolve into debtors looking to sell any and all assets to satisfy their mounting debts. These sales or transfers of property can ultimately end up hurting the debtor. It seems counterintuitive, but sometimes it can benefit a debtor to refrain from selling their assets or transferring property to certain creditors before they file for bankruptcy. That is because the bankruptcy Trustee can claim certain transactions were fraudulent and can essentially claw those transactions back. If you are in a position where you may be selling nonexempt property and you are thinking about filing for bankruptcy it is important to talk to a lawyer first.
Here are a few ways in which you, as a debtor, can avoid trouble with your bankruptcy. I encourage all my clients to follow these five basic principles in the prebankruptcy planning period (These recommendations are from a debtor's perspective).
1) It is advisable that you shouldn't convert nonexempt property if you have equity in your home.
If you are a homeowner, then converting nonexempt property into cash can dissolve your homestead exemption. Wyoming's homestead exemption is currently is $20,000.00 for a single filer and $40,000.00 for a married couple filing jointly. Some of the cash you receive from prebankruptcy sales can lessen the amount you get to keep through the process. Please reach out to the Smith Law Firm LLC if you are in a position of selling nonexempt property before your bankruptcy. We may be able to advise you on a better course of action.
2) When you a reporting your prefiling transactions be TRUTHFUL!
The Statement of Financial Affairs (SOFA) is scrutinized by the US Trustee. When the US Trustee sees this section of your bankruptcy filing they appreciate your frankness as a badge of your honorable intentions. If the court determines that you fraudulently or with bad intentions transferred property the Court can deny your bankruptcy discharge or worse.
3) Transfers right before the filing are not a good idea.
A judge is less likely to disapprove of a transaction the farther it is in the past from your filing. In some courts transfers on or near the filing can be red flags. Some courts have even placed rules such as one year prior to filing for bankruptcy get automatic scrutiny. If you have made transactions that could deprive creditors of the bankruptcy estate's assets you should discuss these transfers with the Smith Law Firm LLC before your filling.
4) Do not try and hide assets by changing the name on the ownership of property.
If you simply change the ownership percentage of a piece of property, especially a piece of property that is nonexempt, to an exempt piece of property often times the judge will view this a as fraudulent transfer. Fraudulent transfers like these often times involve moving equity from a nonexempt property into an exempt property like the mortgage on a home. Debtors in the past have moved the cash sale of their third car into the equity of the home then claimed the homestead exemption. Courts do not like such transactions. These type of transactions can lead to a court not granting discharge or worse.
5) If you are in Wyoming filing for bankruptcy you should always consult a bankruptcy attorney before you engage in prebankruptcy planning.
If you are in the process of filing bankruptcy, or have begun the process without an attorney, then contact the Smith Law Firm LLC to make sure you are doing everything correctly. A misstep can result in you not getting a discharge, or worse you may face criminal charges.