During a Las Vegas Chapter 7 bankruptcy case, all of the property in the debtor’s “possession, custody, or control” is part of the bankruptcy estate. If there is estate property that is not exempt from collection, the bankruptcy trustee may require turn-over the property to pay creditors. It is therefore extremely important to accurately identify all of the debtor’s property and its status prior to filing a bankruptcy case.
One situation that can cause headaches in bankruptcy is misrepresenting the actual balance in a checking account on the day the bankruptcy is filed. If the debtor is unable to exempt the cash balance in a bank account, the trustee may require its turn-over, even if the cash is subsequently spent.
Delays in filing a case can sometimes lead to checking account issues. For instance, the debtor believes that the case was filed the day before payday, when actually it was filed on the debtor’s payday. The bankruptcy schedules report $100 in the bank account, when actually the amount is $1,000.
Negligence can also be a factor in bank account mishaps. One common mistake is reporting the checking ledger balance instead of the actual bank balance. The United States Supreme Court held in the case of Barnhill v. Johnson, 503 U.S. 393 (1992), that the transfer of funds occurs when the bank honors a check. Therefore, if the bank balance is $2,000 and $1,900 is written in outstanding checks that have not been honored by the bank, the full $2,000 is property of the estate.
Preventing the above problems is simply a combination of good bookkeeping and good communication. First obtain your actual bank balance, and account for any direct deposits, pay checks, and any outstanding checks. Next discuss the situation with your bankruptcy attorney. Be careful about writing checks just prior to filing bankruptcy. In some cases pre-filing financial transfers can cause additional issues in your bankruptcy. It may be prudent to delay your bankruptcy filing until certain checks clear or your paycheck has been spent on necessities.
Avoiding surprises and problems in your bankruptcy case takes cooperation between you and your attorney. Immediately inform your attorney if you have changes in your property, debts, income, or expenses after you have signed your bankruptcy petition. For your free Las Vegas bankruptcy consultation, contact Freedom Law Firm at 702-745-8584 or fill out our form online.