Bankruptcy Planning or Fraud?

Bankruptcy Planning or Fraud?

There is advice an attorney may provide a debtor that is ethical and not fraudulent. However, it can be a fine line. I have often been asked to become complicit with debtor’s in formulating stories or transfering property so as to manipulate bankrputcy laws. I have also advised debtor’s about their rights and legitimate ways to maximize the benefits of bankrputcy.Most debtors do not have to worry about bankruptcy planning because all of their assets are exempt or because they do not have time to plan a bankruptcy filing due to sudden loss of income or incurring an unexpected debt that forces them to file quickly to prevent aggressive creditor action.Debtors who have non-exempt assets or who do not presently pass the means test often engage in strategic planning to allow them to qualify for a particular chapter of bankruptcy or to exempt the maximum amount of assets in bankruptcy. Exemptions are determined based on the value of the property as of the date of filing. A careful pre-petition review and analysis of the debtor’s eligibility and exemptions is usually necessary.Debtors frequently convert non-exempt assets into exempt assets prior to filing bankruptcy. This is not fraudulent per se, but is subject to a fraud and fraudulent transfer analysis, particularly as to the debtor’s intent. The court may examine whether a transaction concealed or was made with the intent to deceive or hinder creditors or the trustee.Those transactions found to be so made are subject to the trustee’s avoidance powers. Creditors may be considered defrauded by debtors who systematically sell assets and use the cash to restructure their equity in a way that most favors themselves or particular creditors. Overfunding of insurance policies, IRA’s, or other exempt assets can be avoided by a trustee. Egregiously fraudulent planning can result in a denial of a discharge.

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