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Red Flags to Avoid When Filing for Bankruptcy

Full transparency is required to avoid charges of hiding assets or income

Bankruptcy is a legal remedy that requires good faith by those seeking relief from debt. The United States Bankruptcy Court and its trustees are on guard against dishonest filers who use the system to defraud their creditors. Certain aspects of a filing can raise suspicion, complicating and even derailing your bankruptcy case. With more than 28 years as a Queens bankruptcy attorney, Mark E. Cohen, Esq. has the knowledge and experience to spot red flags and can take appropriate steps to eliminate them. When you retain my services, I make every effort to prepare a bankruptcy case that will proceed trouble-free from filing to discharge.

The role of the trustee in the bankruptcy process

Each Chapter 7 and Chapter 13 bankruptcy case is administered by a trustee, an appointed officer who shepherds the case through the Bankruptcy Court. If the trustee finds inconsistencies in the filing or its documentation, he or she will investigate and, depending on the problems revealed, may take curative or adverse actions. The case may also draw the attention of the United States Trustee, who may argue that granting the debtor a discharge of debt would constitute a substantial abuse of the bankruptcy process. You want to avoid this situation if at all possible, so it’s vitally important to deal with all potential problems in advance of filing your petition.

Common signs of bad faith in consumer bankruptcy filings

Trustees are trained to spot discrepancies that might indicate abuse of the bankruptcy process. Common red flags that draw the trustee’s attention include:

  • Fraudulent transfers — If a debtor transfers assets to a third party to shield them from creditors, the transfers may be deemed fraudulent and set aside during a bankruptcy proceeding. The trustee will examine transfers made within two years of bankruptcy filing and under some circumstances, the look-back period can be as long as 10 years. If the property in question went to an “insider,” such as a close friend or relative, and the consideration is less than the market value of the property, a trustee may assume that the recipient is simply holding the property and intends to transfer it back to the debtor after bankruptcy. Another type of fraudulent transfer is to “repay” a relative for a personal loan that never actually happened. The trustee has the authority to avoid or unwind a fraudulent transfer, reclaiming the property from the recipient and returning it to the bankruptcy estate.
  • Undisclosed assets — Bankruptcy petitioners must be completely transparent about the property they hold. In Chapter 7 bankruptcy, the petitioner can keep exempt assets up to a certain value but nonexempt assets are placed in the bankruptcy estate. The trustee takes charge of the nonexempt assets in the bankruptcy estate and may use them to towards repayment of creditors. Failure to disclose assets may constitute fraud.
  • Incomplete or inconsistent documentation — You must have documentation, such as tax returns, bank statements and other financial records, to support the assertions in your bankruptcy filing. If the documents are incomplete or if entries of information are inconsistent, the trustee will investigate further and may find discrepancies that serve to derail the bankruptcy proceeding.

To avoid these pitfalls, you need a lawyer with experience and a firm understanding of how bankruptcy works. After more than 28 years of bankruptcy practice, I have the skill and knowledge necessary to identify and correct potential problems that could defeat your bankruptcy case before it begins.

Contact a skilled bankruptcy lawyer in Queens, NY

Mark E. Cohen, Esq. provides personalized bankruptcy advice for consumers in Queens and throughout New York City and its surrounding counties. To schedule a consultation, call 718-223-5492 or contact me online. My office is conveniently located on Old Country Road in Westbury.


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