It’s natural for people to want to use their friends and family to help shield their assets from bankruptcy, but this is something that people who are considering filing a Las Vegas bankruptcy must avoid. The bankruptcy code does not look kindly upon debtors who use their close acquaintances to help them keep their assets out of the bankruptcy estate and their other creditors. Thus, the bankruptcy code defines terms like “insiders” and “affiliates” to denote a set of persons that receives special scrutiny when it comes to assets transferred by the debtor before filing. Title 11 U.S.C. § 101(31)(A) [http://www.law.cornell.edu/uscode/text/11/101] dubs the following individuals as “insiders”:
- The debtor’s relatives
- Relatives of the debtor’s business partners
- Partnerships in which the debtor is a general partner
- The debtor’s general partners
- Corporations in which the debtor is a director, officer, or “person in control”
The bankruptcy code lists other insiders depending whether the debtor is a corporation, partnership, municipality, affiliate (any entity that owns 20 percent or more of the voting stock shares in a corporation or is in control of the corporation, when the corporation is the debtor), or managing agent of the debtor. Most of the time, however, debtors are individuals, so the five insiders listed here are what they should be concerned about.
The implications of the above definition are that the bankruptcy Trustee will place any asset transfers debtors make to insiders under more careful scrutiny. If the transfers occur between one year and 90 days before the debtor files bankruptcy, the Trustee can “avoid” them, which means compelling the insider to repay the bankruptcy estate. Presumably, this is not what debtors have in mind, and insiders do not like having the Trustee ordering them to transfer what they believe to be their assets to a bankruptcy estate.
Unfortunately, most debtors do not discuss filing bankruptcy with a Las Vegas bankruptcy lawyer more than a year in advance of filing, so often it’s too late. The solution, though, is to not panic. Simply declare the transfers in your Statement of Financial Affairs that accompanies your bankruptcy petition, and tell any “insiders” that they can expect the Trustee to contact them about the transfers.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-745-8584 to set up your free consultation.