Orlando residents who are considering filing chapter 7 bankruptcy should know the rules that apply to their financial transactions. Filing chapter 7 bankruptcy is based on a very simple agreement with the Orlando bankruptcy court: you will receive an almost immediate discharge of all your debts, in exchange for your agreement to surrender to the court your non-exempt property. Now, most people who are filing chapter 7 bankruptcy in Orlando do not have to surrender any property. That is because Florida law provides exemptions that protect the debtor’s property from having to be surrendered. Please read my other postings on this blog that discuss what you get to keep in a chapter 7 bankruptcy. However, for individuals and families that have more property than the exemptions allow, there are rules that apply to financial transactions that occur before filing chapter 7 bankruptcy. These rules are designed to prevent a person from “hiding” non-exempt property and then simply getting it back after bankruptcy to avoid having to surrender it to the court.
These are a few of the rules that will help you avoid getting into trouble if you are considering filing chapter 7 bankruptcy.
First, you need to know that the petition that you file with the court is signed under oath. In your petition, you swear under penalty of perjury that all the information in your petition is accurate and complete. Not only is lying about your fincances considered perjury (a crime), it can also subject you to criminal prosecution for bankruptcy fraud. These crimes are prosecuted by the Department of Justice. You don’t want to mess with the Feds!
Second, you can not transfer your property to another person simply to avoid surrendering it to creditors. Part of the petition, called the Statement of Financial Affairs (SOFA), requires you to report all transfers of property during a period of up to two years, and even longer for certain kinds of transfers. The court will examine these transactions to make sure that they were legitimate. It’s OK to sell your property if you do so for a fair price. But you can’t sell your car for one dollar to Uncle Fred, just to avoid having to surrender it in bankruptcy. If the court finds that a transfer of your property constituted a fraud on your creditors, it can “undue” the transaction and even sue the person you transfered the property to.
This rule also prohibits you from gifting your property soon before filing chapter 7 bankruptcy. You must report gifts exceeding $200.00 that were made within one year of filing bankruptcy.
Third, you can not pay off creditors soon before filing bankruptcy in a way that is considered unfair. This is known as a “preferential transfer.” It prohibits a debtor from unfairly favoring one creditor over another by paying them disporportionately compared to other creditors. An example of this would be paying off the balance of one loan, and then filing to discharge the rest of your debts. Many people often unwittingly break this rule by paying off a family member soon before filing bankrutpcy. The rule does not prohibit you from making normal regularly scheduled debt payments on a car loan or house loan. The SOFA requires you to report all payments exceeding $600 to creditors during the 90 day period that you file, and up to a year for any payment to a family member or close friend.
These are just some of the rules that apply to filing chapter 7 bankruptcy. If you are considering seeking debt relief by using the bankruptcy laws, you should first speak with an experienced bankruptcy attorney to make sure that your past financial transactions will not affect your right to get a discharge. I try to help my clients stay out of trouble by discussing these rules before filing bankruptcy. Sometimes it is necessary to wait to file bankruptcy until after the look back periods under the bankruptcy code expire. Call my office today to schedule a free consultation to discuss your situation.