Submitted by Jen Jones on Sat, 07/25/2009 - 7:35pm
It shouldn't take more than a few visits to our blog for you to find a slew of posts about how to prepare for your bankruptcy and manage all the relationships along the way, like those with your attorney and bankruptcy trustee.
Like any relationship, the ones that are forged during a bankruptcy should be built on trust. That is, you need to be upfront with everyone and every entity involved, even your creditors, to ensure that in the end you wind up where you need to be. A large part of building that trust has to do with how you handle the disclosure of your assets. The following point almost deserves to be in all caps, but no one likes to be yelled at, so: never try to hide or transfer assets with the intention of shielding them from creditors.
Okay, now that the lecture is over, it should be noted that sometimes people transfer assets with good intentions. A constructively fraudulent transfer is not an deliberate attempt to hide an asset but is looked down upon by creditors because quite often, the gift or item in question is transferred at a value less than its actual worth. For a simple example, imagine you sold a $25,000 SUV for $15,000 out of simple desperation to raise cash for the bankruptcy. Sure, you now have cash, which is still an asset, but the creditor would have preferred the $25,000 SUV. And you can rest assured, they'll make a case out of it.
Consider these additional examples of constructively fraudulent transfers:
As you can see by the example above, even donations are subject to becoming constructively fraudulent transfers in the eyes of the court. Large donations to churches, schools and other non-profits can all be retrieved by the trustee if they result in the reduction of an asset's value or are considered an attempt to quickly move money and thus, diminish the trustee's ability to obtain proper restitution for your debts. There has been some action against this practice, however. In 1998, a contingent of religious organizations successfully lobbied for the Religious Liberty and Charitable Donation Protection Act, which was formulated to protect good-faith monetary gifts of up to 15 percent of a person's gross income based on the year before filing bankruptcy.
If you're considering filing for bankruptcy, it's important to talk to a bankruptcy attorney early to avoid an innocent mistake like the ones described in this post. In North Carolina, call the Law Offices of John T. Orcutt for a free initial consultation. +1-833-627-0115.
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