Other Debts
The United States Bankruptcy Code requires debtors filing under Chapter 13 or any other bankruptcy chapter to list all of their debts. You cannot file a Chapter 13 to stop a foreclosure, but leave out your car lender, the IRS, your credit card companies or your medical creditors. If you owe money to anyone, that debt must be listed in your Chapter 13 case.
When you and your attorney prepare a Chapter 13 plan, similarly situated creditors must be treated the same. For example, if your plan provides that unsecured creditors get paid 10 cents on the dollar, all unsecured creditors – credit card lenders, medical providers and holders of unsecured personal loans – will get 10 cents on the dollar. You cannot, for example, create a plan provision that pays your brother back at 100% but your credit card lenders 10%.
Preferences and Transfer of Assets
You also need to be careful about making lump sum payments to selected creditors prior to filing bankruptcy. Section 547 of the Bankruptcy Code contains specific language about prohibited transfers known as “preferences.” A prohibited preferential payment is one that is made out of the ordinary course of business on an existing debt. If the payment is to a third party the “look back” is 3 months from the date of filing. If the payment is to an “insider” (relative, company that you own shares in) the “look back” is 1 year.
Similar prohibitions apply if you were to try to “give away” some of your assets to protect those assets from creditors in bankruptcy. These types of transfers are prohibited by the Code and and delay by months or years your ability to file.
Your Clark & Washington lawyer can explain how the rules against preferences or asset transfer may apply to you. As always, do not hesitate to call our office before making such a transfer – we are happy to help and we can save you a great deal of difficulties if you call us before you make any major financial decisions when you are considering bankruptcy.