What is a Fraudulent Transaction?
Before you can file for bankruptcy, a Trustee must determine if any fraudulent transactions have occurred, and ensure that both you and your creditors have conducted yourselves properly.
The Trustee will need to know the following:
- Did you dispose of/ transfer any of your assets in the previous 12 months?
- Did you pay any creditor in excess of regular payments in the previous 12 months?
- Have you had an asset seized by a creditor?
- In the last five years, have you sold, disposed of, or transferred any real estate?
- Have you made any gifts to relatives or others in excess of $500?
- Are you making arrangements to continue paying a creditor?
- Do you expect to receive any sums of money, which are not related to your normal income, or any other property in the next 12 months?
If you answered “yes” to any of these, it may have an effect on whether or not you can file for bankruptcy at this time, and it may effect certain debts. Make sure that you bring any and all supporting documentation along to your initial consultation, as this will make it easier for your trustee to understand your unique financial situation.
The language that your Trustee might use can be confusing, especially if you are new to the insolvency process! Here are some commonly used terms and their definitions:
Fraudulent Preference: Giving a creditor special treatment over others through payment or transfer of assets.
- g. Paying back a loan co-signed by a spouse or paying back a friend’s loan just prior to declaring bankruptcy
Challengeable Settlement: the transfer of an asset to a non-creditor (usually a relative) that is not entitled.
- g. Giving high value collectibles to a friend until the bankruptcy process was finished.
Reviewable Transaction: disposing of assets to related parties for a significantly different price from market value.
- g. Giving your high value collectibles to a friend for $100 when the market value is $10,000.
A trustee may have to reverse fraudulent transactions, and put the asset back into the estate for the benefit of creditors.
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