Bankruptcy Attorney | Restrictions During Bankruptcy (Pt. 2)
Chapter 11 Bankruptcy
Bankruptcy Attorney | Under Chapter 11 bankruptcy, the business or individual undergoes a reorganization in order to pay down its debt and reorganize its income and expenses while regaining its profits. If your business is a corporation, limited liability company (LLC) or partnership, it can continue business operations during the bankruptcy process. While the business is making payments through the debt repayment plan, the business continues operating.
The Chapter 11 bankruptcy process can be a complex, and lengthy one. If you are facing a Chapter 11, you’ll want to work with a bankruptcy attorney to understand the process and what you will need to do to move through it. They will be able to explain the terminology in addition to what is legal, and what you will be required to do.
Typically consumers file under Chapter 7 or Chapter 13. There are a number of exceptions in each that allow you to protect your property so that you have something to start over with after you exit bankruptcy. Some common exemptions include: equity in your home and car, jewelry up to a certain dollar amount, household items, clothing, and most retirement funds.
In Chapter 7 your assets are liquidated to pay back creditors. The remainder of your assets that are not protected under exemptions are sold to pay creditors. And all creditors receive a proportional payment once those assets are sold. For example, if you owe your Mom 5% of your debts, she will receive 5% of the proceeds from the sale of your assets.
In Chapter 13, a court uses your disposable income to pay back creditors for 3 to 5 years. Disposable income is determined by taking your income and subtracting state-set and national-set standards for living expenses. You will provide the court with your disposable income and the court will distribute the amount proportionally among creditors.
Gifts During Bankruptcy
While money you have been loaned from friends and family can be considered a gift, you will still need to disclose the amount on your bankruptcy schedules. This also is the case if you are the one that gifted the money. Depending on the state you file in, you might be required to disclose the amount you gave on your bankruptcy schedules if it’s over a certain dollar amount.
The timing of your bankruptcy filing determines what happens to the gift. If the gift was received prior to filing, a court will take it into account when determining the amount you need to pay creditors. But if the gift was received after filing for Chapter 7, it will not be included in the bankruptcy proceeding.
For Chapter 13, it will depend on your specifics. If the gift was received before filing, you might be expected to pay more money to your creditors. If you receive the gift between the date of filing and the date the repayment plan is confirmed, your trustee might view that gift as disposable income, which means you will be able to pay more to your creditors. If the gift is received after the repayment plan has been confirmed, you’ll probably be able to keep the gift without having to increase the payments to creditors.
If the gifts are significant amounts, a trustee might be able to claim that money and make you repay your creditors with it. This is why it’s important to be smart about gifts you receive during bankruptcy. A bankruptcy court’s main objective is to keep creditors at bay. A bankruptcy trustee has the right to take back property or money that the debtor improperly gave away before filing in what is termed as a “clawback.”
Clawback
A clawback can be triggered for a number of reasons, including something as small as giving cash to a relative for their birthday. These can also be deemed “fraudulent transfers.” You can also trigger a clawback if you repay a loan from a friend or family (either with or without a promissory note) before filing for bankruptcy. This is called a “preferential payment.” What this means is that you chose to repay a creditor over another creditor (remember, they are all viewed as “creditors,” regardless of their relationship to you). A bankruptcy court’s job is to ensure all creditors are treated equally during the bankruptcy process.
Fraudulent Transfers
When a court deems a transfer of money a “fraudulent transfer,”they will need to recover the money as an asset that can be used for bankruptcy purposes. This can be a very costly mistake, and if a court finds the fraudulent transfer was done to intentionally shield the asset from bankruptcy, a court can stop the bankruptcy so that a debtor is not able to disclose their debts.
Because of the laws regarding gifts and loans, it’s important that you consult a bankruptcy attorney before you give any money to anyone during a bankruptcy. If you have not yet filed for bankruptcy, but are considering it, you should speak with an attorney before accepting any loans or gifts from family members. – Simon Resnik
Specializing in bankruptcy and foreclosure law for over 20 years. Call attorney David Pinkston for a free consultation today: (904) 389-5880. #FloridaBankruptcyAttorney #FloridaBankruptcy
If you are thinking about #bankruptcy or #foreclosure in the Jacksonville, Florida area, you should call attorney David Pinkston. David is very experienced with all aspects of bankruptcy law yet very personable and easy to talk to. Call Us Today! (904) 389-5880